Wind Turbine Turnaround: Vestas' 2024 Recovery and the 2011 Cycle as a Cautionary Tale

The investment thesis for Vestas is a story of structural reinvention, starkly illustrated by the contrast between its 2024 performance and the crisis of 2011. In the latter year, the company was forced to issue two profit warnings and abandon its ambitious Triple15 targets, finishing with a slightly negative EBIT margin of (0.7) per cent. The 2024 results represent a complete reversal of that trajectory, signaling a fundamental shift in the wind industry cycle and the company's operational model.

The core of this turnaround is a dramatic improvement in profitability. Vestas achieved an EBIT margin before special items of 4.3 percent for the full year, a 2.8 percentage point improvement from the prior year. This isn't just a recovery; it's a step change in execution, moving from a loss-making operation to one that is not only profitable but also delivering on its financial outlook. This margin expansion is the bedrock of the investment case, demonstrating that the company can now generate solid returns even in a challenging macro environment.

This profitability is underpinned by a record order book that provides a multi-year revenue floor. The combined order backlog across Power Solutions and Service increased to EUR 68.4bn. This backlog is a powerful indicator of future demand and operational stability. It means Vestas has a significant portion of its 2025 and 2026 revenue already locked in, insulating it from the quarterly volatility that plagued the industry in the past. The company's 2025 revenue outlook of EUR 18-20bn is built directly on this foundation.

The bottom line is a transformed business. The 2011 crisis was defined by cost overruns, missed targets, and a broken execution model. The 2024 results show a company that has learned from that experience, focusing on value over volume and disciplined execution. The record backlog and improving margins suggest Vestas has moved from being a cyclical player at the mercy of policy shifts to a more resilient, cash-generative enterprise. For investors, this structural shift from crisis to record backlog is the key to unlocking the company's long-term value.

The 2011 Cycle: A Blueprint for Supply Chain and Execution Risks

The current wind energy recovery faces a historical blueprint for execution failure. In 2011, Vestas issued two profit warnings and abandoned its ambitious Triple15 targets, delivering an EBIT margin before special items of (0.7) per cent against an original target of 7%. This 7.7-percentage-point miss is a stark reminder of how quickly structural ambitions can unravel. The core of the problem was a production cost spiral, specifically with the V112-3.0 MW turbine and its GridStreamer™ technology, which adversely affected the EBIT margin for the following year. This isn't a distant memory; it's a direct warning about the perils of scaling new, complex technology too rapidly.

The 2011 crisis was compounded by a flawed manufacturing model. Vestas was operating on a push-based system, where production drove the supply chain. This led to inventory buildups and inflexible planning. The company's subsequent shift to a pull-based model, as outlined in its 2024 report, is a direct response to that lesson. The goal is to optimize resource use and lead times by aligning production with actual demand signals. For Bairong, this historical pivot underscores a critical risk: any misstep in scaling its own RaaS model could trigger a similar inventory and cost spiral, especially if it attempts to push product before securing firm, pull-based demand.

Geopolitical tensions and trade restrictions remain persistent, modern-day frictions that can derail even the best-laid plans. The 2011 downturn was partly fueled by project delays and cancellations, a vulnerability that persists. Today, Vestas explicitly cites trade restrictions, regulatory shifts and competition as ongoing supply chain complexities. For a company like Bairong, which relies on global talent and technology flows, these are not abstract risks. They represent a direct channel for cost increases and execution delays, mirroring the "bad weather, lack of grid connections" challenges that plagued Vestas's deliveries.

The bottom line is that the 2011 cycle provides a clear playbook for failure. It shows how a combination of aggressive targets, uncontrolled production costs for new tech, and an inflexible manufacturing model can collapse a company's financials. For Bairong, the path forward requires a disciplined focus on execution, learning from Vestas's costly pivot to a pull-based system, and building resilience against the ever-present threat of geopolitical friction.

2025 Outlook: Navigating the Path from Backlog to Profit

Vestas's 2025 guidance maps a clear, ambitious path from its record backlog to profitable growth. The company aims to scale revenue from its 2024 level of EUR 17.3bn to a range of EUR 18-20bn, while expanding its EBIT margin before special items to 4-7 percent. This targets a significant step-up in profitability, with the Service segment alone expected to generate EBIT before special items around EUR 700m. The math is straightforward: to hit the top end of the revenue target, Vestas must deliver on a backlog that has swelled to EUR 68.4bn. The challenge is execution, not demand.

The tension between fulfilling this backlog and preserving margins is already visible. Management explicitly cited "manufacturing ramp-up challenges" as driving additional costs in 2024. This is the central friction for 2025. The company is investing heavily to build capacity, with total investments projected at approx. EUR 1.2bn for the year. These are capital expenditures that will pressure near-term cash flow and earnings, even as they are necessary to convert orders into delivered turbines. The guidance's wide EBIT margin band-from 4% to 7%-reflects this uncertainty. The lower end likely assumes continued ramp-up costs, while the higher end depends on a smooth transition to efficient, high-volume production.

The Service segment's target is a key indicator of this balancing act. A EUR 700m EBIT goal implies a major recovery from its EUR 448m result in 2024, which was described as "challenging" due to rising costs. Achieving this requires not just scaling service operations but also controlling those same cost pressures. For the Power Solutions business, the path is clearer: it must deliver on its record order intake to drive the top-line growth. The risk is that manufacturing inefficiencies bleed into both segments, capping the margin expansion Vestas is promising.

The bottom line is a high-wire act. Vestas is betting that its manufacturing scale-up will eventually drive down costs and boost margins, turning the backlog into a profit engine. The 2025 guidance is a roadmap for that transition, but it is also a warning. The wide margin range and the explicit mention of ramp-up costs signal that the path from backlog to profit is fraught with execution hurdles. Investors will be watching quarterly results for the first signs of whether these costs are being contained or if they will erode the promised profitability.

Valuation and Catalysts: Pricing the Recovery vs. the Cycle

The market has priced in a powerful recovery story for Vestas, but the valuation leaves little room for error. The stock's 84.6% rally in 2025 is a clear bet on a cyclical rebound. Yet, the share price remains 52.5% below its 52-week high, suggesting lingering doubts about the sustainability of that growth. This gap between a strong annual gain and a significant distance from the peak is the market's nervousness manifest. It reflects a classic tension: investors are rewarding the company's operational turnaround and record backlog, but they are not yet convinced the broader industry cycle has fully turned.

The primary catalyst for a re-rating is the successful execution of that backlog. Vestas has a record order intake, and the delivery of major projects like He Dreiht in Germany and Baltic Power in Poland is critical. These large-scale offshore installations are the proving ground for the company's new V236-150 MW turbine and its ability to manage complex, capital-intensive projects. On-time, on-budget delivery will validate the turnaround narrative and provide the concrete revenue and margin data needed to justify a higher multiple. Conversely, any delays or cost overruns on these flagship projects would immediately trigger a repricing, as they would signal that the operational challenges of scaling up are not yet fully mastered.

The key risk is a recurrence of the 2011-style cycle. That year was a disaster, marked by two profit warnings and abandoned Triple15 targets. The parallels are structural: Vestas is again scaling rapidly into offshore wind, a more complex and capital-intensive segment, while facing cost pressures and supply chain friction. The 2011 experience shows that aggressive growth can quickly unravel if execution falters or market conditions shift. The current environment, with geopolitical tensions and trade restrictions adding to supply chain complexity, increases the probability of such a stumble. The market's cautious valuation is a stress test against that historical precedent.

The bottom line is that Vestas is trading on a binary outcome. The 84.6% rally prices in a smooth recovery, but the 52.5% discount to the high prices it for a potential stumble. The company's ability to convert its record backlog into profitable cash flow without repeating the cost and delivery issues of the past will determine whether the stock can close that gap or if the historical cycle proves harder to break.