Vestas' 2025 Outlook: Can Strategic Discipline Offset Near-Term Margin Pressures?

The global wind energy market is entering a pivotal phase. With onshore and offshore segments expanding at divergent but complementary rates, companies like Vestas Wind Systems A/S must balance short-term operational challenges with long-term growth ambitions. As of Q2 2025, Vestas has demonstrated resilience in navigating cost inflation and margin pressures, but the question remains: Can its strategic discipline sustain profitability in a structurally growing yet volatile market?

Financial Performance: A Mixed Picture

Vestas reported Q2 2025 revenue of EUR 3.7 billion, a 13.6% year-on-year increase, driven by improved onshore performance and reduced warranty costs. However, the ramp-up of its V236-15.0 MW offshore platform—designed to capture high-growth offshore markets—has strained margins. The EBIT margin before special items improved to 1.5% in Q2 2025, up from a -5.6% loss in Q2 2024, but adjusted free cash flow fell to EUR -227 million, down from EUR 524 million in the prior year. This reflects the capital intensity of scaling offshore operations.

Despite these near-term headwinds, Vestas maintains a robust order backlog of EUR 67.3 billion, with EUR 31.4 billion in wind turbine orders and EUR 35.9 billion in service agreements. This positions the company to capitalize on its 2025 revenue guidance of EUR 18–20 billion and an EBIT margin target of 4–7%.

Strategic Initiatives: Efficiency and Discipline

Vestas' management has prioritized three pillars to address cost inflation and operational inefficiencies:
1. Commercial Discipline: Tightening customer negotiations and supply chain coordination to reduce margin erosion.
2. Operational Maturity: Streamlining technology introductions and improving risk assessment to avoid delays and cost overruns.
3. Sustainability-Driven Cost Savings: Enhancing recyclability of turbine components and reducing waste, aligning with science-based decarbonisation goals.

The CEO, Henrik Andersen, emphasized progress in these areas, noting a reduction in warranty costs from 5% of revenue in 2024 to 4.3% in Q2 2025, with a target of 3% by 2026. Additionally, the Service segment—expected to contribute EUR 700 million in EBIT in 2025—is undergoing a “recovery plan” to address cost challenges while maintaining its role as a revenue anchor.

Market Positioning: Onshore Dominance, Offshore Ambition

The wind energy market is forecast to grow at a 4.9% CAGR through 2030, with onshore demand (excluding China) expanding at 7–9% annually. Vestas, a market leader in onshore, is well-positioned to benefit from this trend. Meanwhile, offshore wind—projected to grow at 20–25% annually—is a high-margin but capital-intensive frontier. Vestas' V236-15.0 MW platform, now in production, is a key differentiator, but its initial costs are dilutive to short-term margins.

The company's long-term ambition is to achieve an EBIT margin of 10% and a 20% return on capital employed (ROCE), aligning with its goal to outgrow the market. However, this requires patience: Offshore projects will likely remain margin-dilutive until 2027–2028, while the Service segment's 25% EBIT margin target is a multi-year horizon.

Investment Implications

Vestas' strategic discipline is evident in its ability to maintain commercial rigor and operational focus amid global supply chain disruptions. However, investors must weigh near-term margin pressures against long-term structural growth. The company's EUR 1.2 billion investment in 2025—largely for offshore infrastructure—signals confidence in its long-term vision but may weigh on free cash flow until 2026.

For investors, the key metrics to monitor are:
- EBIT margin expansion: Can Vestas sustain its Q2 2025 improvement and reach the 4–7% target?
- Order backlog execution: Will the EUR 67.3 billion backlog translate into revenue without operational bottlenecks?
- Service segment recovery: Can the 25% EBIT margin target be achieved by 2027?

Conclusion: A Long-Term Play with Caution

Vestas' 2025 outlook reflects a company in transition. While near-term margin pressures are real, its strategic focus on efficiency, commercial discipline, and sustainability positions it to capitalize on the wind energy boom. For long-term investors, Vestas offers exposure to a structurally growing market and a management team committed to profitability. However, short-term volatility—driven by offshore ramp-up costs and service segment challenges—demands patience.

Investment Advice: Consider Vestas as a core holding for portfolios with a 5–7 year horizon. Use dips in free cash flow or stock price corrections as opportunities to accumulate shares, but maintain a balanced approach given the sector's cyclical nature.