Wind Turbine Stocks Hit by Rising Costs

Wind Turbine Stocks Sit Out Stock Market Rally

Vestas Wind Systems (VWDRY) and Siemens Gamesa Renewable Energy (GCTAY) have been left out in the wind during this year’s stock market rally. Supply chain slowdowns, rising commodity prices, and a decline in orders are keeping investors on the sidelines. Year-to-date, both Vesta Wind Systems and Siemens Gamesa Renewable Energy are down, underperforming the broader market.

Part of the decline in shares can be attributed to the bursting of the green stock bubble. Shares of clean energy stocks, including wind, had a strong run in 2020, but they have been selling off more recently. However, a bigger problem is rising cost inflation which makes it expensive for these companies to conduct business.

August Inflation Soars

Take the producer inflation index, which surged in August, as evidence. Prices producers get for their goods and services increased 8.3% year-over-year last month, marking the biggest increase in more than a decade. In July the index jumped 7.8%. The data point is dashing hopes inflation will ease as we move through the remainder of the year.

For Vestas Wind Systems and Siemens Gamesa, raw materials costs are hurting their bottom lines. In July, Siemens Gamesa said rising raw material costs will reduce its earnings by $271 million. The company has a multi-year order book, but because suppliers will only contract for as long as 15 months, it was exposed to higher raw material costs for newer projects.

Shipping Costs Weigh on Wind Turbine Makers

In addition to rising raw material costs, wind turbine companies are contending with supply chain delays and higher shipping costs created by the pandemic. In the past year, logistics costs, which account for 15% of a turbine’s price, have nearly doubled. Those inflated prices are expected to remain in place through 2021. In addition to that, the wind turbine companies are facing a lull in demand after a strong 2020 driven by the end of incentives in China and the US.

The wind turbine market has not participated in the stock market rally of 2021 as the industry faces a perfect storm of rising raw material costs, supply chain delays, and a slowdown in sales.

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