The wind industry is doomed.
Companies need to create value for their customers to create value for their shareholders. Turbine manufacturers like Vestas and Nordex don't do that. That's why their terminal value is zero.
Disclaimer: The information contained in this article is not and should not be construed as investment advice. This is my investing journey and I simply share what I do and why I do that for educational and entertainment purposes.
TLDR Summary
When viewed in isolation, wind is the most expensive energy source out there because it requires expensive fossil fuel back-up capacity and because its production volatility drives up costs for utility companies to insure themselves against price swings. Think of intermittent energy as an intermediate product that needs to be refined to firm energy to be consumable. The costs associated with this refining process are usually ignored. But they are real and they are material.
When viewed in combination with other energy sources, there is however nothing wrong with adding a few percentage points of wind to a country’s energy mix. Every kWh of wind keeps a few hydrocarbons in the ground. However, once wind surpasses a certain threshold in the grid, adding capacity will be detrimental because the disadvantages from induced production volatility exceed the benefits from low marginal production costs and low emissions.
At an 8% production share, the world economy is likely close to such a threshold. At the 14% target for 2030, it would certainly be past that point. Once common sense prevails, expansion targets will be scrapped. Wind will play no major role in energy grids around the world thirty or forty years from now because it doesn’t make sense. That will devastating for everyone in the wind industry, incl. turbine manufacturers which need the current narrative to have any hope to make their business model work eventually.
Outside of China, Vestas and Nordex are the largest wind turbine manufacturing pure plays with a combined global market share of just under 20%. They are operating with notoriously low profitability and they are struggling to deliver efficiency gains in their production process which makes wind even less competitive with every year that passes.
Nordex has lost money every year since 2018 and Vestas’ net profit margin is just 3%. The combined market cap of both is still a ridiculous €16bn, which is supported by a combined LTM profit of just €500m. Investors get more attractive earnings multiples on US tech giants! And those don’t need to pray that government subsidies will continue to drive volume growth to finally unlock economies of scale.
The bottom line is this: Unless it is being led by an alchemist like Michael Saylor, a company needs to create value for its customers in order to create value for its shareholders. Wind turbine manufacturers don’t create such value. That’s why they are doomed.