Vestas Reduces Weight for Transformation in China

The world’s largest wind turbine mak- er announced the halt of producing the kilowatt wind turbine on June 25. Along with this is the closure of its factory in Hohhot, Inner Mongolia, China. About 300-350 employees of this plant will be affected as well.

In its newsletter Vestas said: “With the upgrade and development of the global wind power technology, it is necessary for Vestas, the frontrunner in the global wind power industry, to adjust and optimize its own structure. Hereby we announce the stop of the production of kilowatt wind turbines including the V52-850 model and the V60-850 model. But the company still continues to provide support for the kilowatt wind turbines that are still running.”

The newsletter concluded that the number of Vestas’ employees in China will be reduced to 2,600 after the closure of its Hohhot factory. The employees are mainly working for the two production bases in Tianjin and Xuzhou and the offices in Beijing and Shanghai.

Vestas is the world’s largest wind power generator as its installed capacity just surpassed 50 million kilowatts. Vestas is also one of the largest wind power device suppliers in China as well. It got into China early in 1986 after installing the first patch of wind turbines in Shandong. By December 31, 2011, this Danish company had already installed wind turbines whose capacity exceeded 3400 megawatts.

However, from this year, Vestas encountered problems thanks to the depression of the global wind power market and the European debt crisis. In 2011 it even suffered the loss of 166 million euros. For this, Vestas has to release the capital stress by selling assets and carrying out the strategy of shrinking.

Before long, Vestas has already sold a factory in Denmark to China-based wind turbine maker Titan Wind. Now its plant in Hohhot was closed. Jens Tommerup, president of Vestas China, said: “The closure of our factory in Hohhot is of help for the integrated optimization of Vestas’ business and the efficient use of resources for the changeable market demand and our better development in China.”

The market analysts said that the wind power market preferred the wind turbines with big capacities. Vestas, which is better at producing the kilowatt devices, gradually moved into an operating predicament as its business and profits dropped step by step. The closure of the plant producing kilowatt wind turbines is a strategy for transformation which is forced to be taken. Whether it can bring some positive changes remains unknown.

The halt of production in Hohhot

According to the public data, the factory of kilowatt wind turbines was put into use in 2009. The total investment amounted to 58 million euros. It was the first company of Vestas in China that covered the R&D, manufacturing, sales, transportation of wind power devices and after- sales services. It is also its only production base of kilowatt wind turbines in the world.

Jens Tommerup said in the commissioning ceremony of the Hohhot plant that producing the kilowatt wind turbines in China is to meet the special demand in the Chinese market. Firstly about 75% of the unused terrestrial wind in China is running at a middle and low speed. The V60-850 wind turbine is designed to make the best use of the middle- and low-speed wind. Secondly, most of the places abundant in wind resources are remote areas and the V60-850 kilowatt wind turbine is easy to be transported and installed.

Pitifully, the public data shows that the factory in Hohhot only received one order after it was put into production. The order comes from China Datang Corporation Renewable Power Co., Ltd, which signed the contract with Vestas to order 50 sets of V60-850 wind turbines. The total installed capacity reached 49.3 megawatts and will be used in Datang’s wind power project in Horqin Right Front Banner.

As said before, China has already become the country with the largest installed capacity in the world. However, the wind power generating companies in China have a favor for the bigvolume wind turbines, which is obviously out of the expectation of Vestas. In China, even the wind turbines barely hitting the megawatt level have no market. The major rivals of Vestas, such as Huairui Wind Power, have already begun the massive production of 6-megawatt wind turbines.

Jens Tommerup stressed that halting the production of kilowatt wind turbine is based on the forecast of the outlook for this kind of device. Xue Wensheng, senior fellow with China Investment Consulting, said that Vestas timely saw the underperformance of its kilowatt wind turbines in China and took emergent measures to stop the production and aim for the market of “big-volume machines”. Such changes are good for it to win the domestic market and follow the development trend of wind power industry.

Transformation effect to be seen

Vestas’ current operating difficulties are mainly blamed for the European debt crisis and the financial crisis, which reduced the enthusiasm of investors in the wind power industry. After the loss in 2011, the company has to lower the performance expectation in 2012 and give up the goal of increasing the operating revenue to 15 billion euros and profit margin to 15% in 2015.

In Xue Wensheng’s opinion, the halt of producing kilowatt wind turbines can reduce the operating cost of companies, optimize the utilization of resources and help the company survive the current crisis. On the other hand, it shows that Vestas has decided to transform the corporate strategy to put more efforts and advantageous resources into the development wind turbines with bigger capacity for a bigger market share in the future.

Tommerup proved that the closure of the Hohhot plant can save the cost of 10 million euros for Vestas every year.

As he said, Vestas will put more efforts into the expansion of the two existing production bases in Tianjin and Xuzhou. Though the closure of Hohhot factory will have negative influence over Vestas’ development in China in the short term, it conforms to the company’s longterm strategic deployment.