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Vestas SWOT & PESTLE Analysis

ID : 52344153 | Jan 2018

COMPANY PROFILE - Vestas

Business Sector : Energy

Operating Geography : Denmark, Europe

About Vestas : Vestas Wind Systems, or simply Vestas, is a Danish publicly traded, global energy company, dedicated exclusively to wind energy, found in 1945 by Peder Hansen as a household appliance company, before moving to wind turbines in the year 1979. It is involved in the selling, manufacturing, installing and servicing of wind turbines and is the largest wind turbine company in the world. As of 2016, it has installed 59909 wind turbines, in 76 countries around the world, with a total installation capacity of 82 Giga Watts, generating more than 205 Million MWh of electricity per year.

Vestas Revenue : 10237 million EUR – 2016

Competitive Analysis of Vestas

The SWOT analysis for Vestas is presented below:
Strengths
Weaknesses
1. Strong Global Presence
2. Shift in Power Industry towards Sustainable Sources
3. Strong Technological Foundation
1. Small Market Share in High Potential Markets
2. High Dependence on US Market
Opportunities
Threats
1. Potential in Offshore Wind Market
2. Supportive Policies of Renewable Energy
1. Increasing Competition
2. Rising Bargaining Power of Customers

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Detailed SWOT Analysis of Vestas

 

Strength

1. Strong Global Presence: Vestas has a fairly strong global presence across 76 countries. Their global intake was 10.5 GW in 2016, an increase from 8.94 GW of 2015, showcasing a profitable growth. It is present in all the major continents, with major growth being driven from America and EMEA region. Its acquisition of UpWind Solutions Inc. and Availon Holding GmbH increased its competency in the operations service markets of wind turbines. Its global footprint allows it to pursue opportunities in the previously unexpanded markets as newer countries look forward to sustainable energy solutions.

2. Shift in Power Industry towards Sustainable Sources: The electricity demand is expected to grow by approx. 70% by 2040, as per latest reports from International Energy Agency (IEA). Wind power is in a good position to capture this energy demand. Vestas has the advantage of being the early entrant in the market, due to which it enjoys a trustworthy position. This can not only increase the profitability of Vestas in the existing markets but also gives Vestas avenues to capture news markets.

3. Strong Technological Foundation: Having being in the business for the past 35 years, Vestas enjoys a strong technological foundation in the wind energy market. Vestas has the highest investment in technology in the wind power industry. It has the largest centre in wind power industry for product development and testing located in Denmark. Vestas aim is to lower the levelized cost of energy (LCOE) in the market, by bringing in newer high-performing, efficient, technological products to provide higher returns.

Weakness

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Opportunity

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Threat

1. Increasing Competition: Vestas has been facing increasing competition from big as well as emerging players such as GE, Siemens, and Suzlon etc. While GE and Siemens are targeting the markets in US and European markets, Suzlon has actively increased its presence in India, which has a huge untapped wind energy market. Also the competition from Chinese companies is rising as the look to expand to markets outside China. As the demand of wind energy is increasing, the increased competition will result in a decreased market share for Vestas. It needs to tackle this competition beforehand to ensure its expected growth by integrating newer technologies to increase efficiency and lowering the LCOE to attract more buyers.

2. Rising Bargaining Power of Customers: As world becomes more favourable to sustainable power systems, and more competitors enter the market, the bargaining power of consumers is increasing since they have more options in front of them. This is a mark of declining profit margins for the company. Thus they need to lower their cost of productions further to maintain their existing profit margins. This is highlighted by the fact that although they received higher more orders for wind turbines, but at a lower cost as compared to earlier prices.

The PESTLE/ PESTEL analysis for Vestas is presented below:
Political
Economical
1. Conducive Tax Policies
2. Promotion of Renewable Energy
1. Rising Demand Driving Prices Up
2. High Research & Development Cost
Social
Technological
1. Increasing Environmental Awareness
2. Rising Standard of Living
3. Resistance from People over Installation
1. Alternative Energy Sources
2. Challenges in Offshore Turbines
Legal
Environmental
1. Regulatory Approvals by Governments
2. Change in Tax Laws and Regulations
1. High Dependence on Weather Conditions
2. Business Sustainability
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Detailed PESTLE Analysis of Vestas

 

Political

1. Conducive Tax Policies: Wind energy programs are currently enjoying a lot of tax benefits in various countries since governments want to promote such renewable energy sources. Consumers as well as companies enjoy subsidies, tax rebates on installation of wind power systems. For example, in the US, ‘Protection Tax Credit’ (PTC) and ‘Investment Tax Credit’ (ITC) have grant various forms of benefits in renewable energy projects.

2. Promotion of Renewable Energy: Political initiatives, international energy agreements, climate laws etc. influence the renewable energy market. The growing focus on reducing CO2 emissions has further led governments to turn to renewable sources of energy. Global investments in renewable energy was $286 billion in 2015, compared to global investment in fossil fuels, which was $130 billion, showing the shifting trend towards renewable energy. This factor is positive news to Vestas, which aims to become the leader in wind energy systems.

Economic

1. Rising Demand Driving Prices Up: The demand for renewable energy sources has risen considerably over the past few years. This has led to an increase in production requirements to meet the rising demands. This has in turn resulted in driving the prices of raw materials higher. This affects the base line profit of Vestas, since they would need to spend more for acquiring the materials required for production.

2. High Research & Development Cost: As world is opening up to wind energy, and more companies are entering into the market, the cost involved in research and development is increasing. Since there are many players in the market, hence the profit margins are decreasing due to competition from these players. Vestas needs to spend more time in research and development to develop more efficient systems, while keeping the cost of production down, to maintain its margins. Wind systems require high innovation and technological research and development to maintain LCOE.

Social

1. Increasing Environmental Awareness: Growing emphasis on health and fitness, and the degradation of environmental condition being observed by people world over has led to change in value system of people wherein they are more aware of environmental pollution, and its antecedents. The global environmental consciousness has increased and more number of people are opting for renewable energy sources, especially in developed countries. Vestas introduced the WindMade Certificate to capitalize on the trend of utilizing renewable sources of energy for various purposes.

1. 2. Rising Standard of Living: Changing social trends and rising standards of living are also an important social factor in case of renewable energy sources. Increase in living standards has led to an increased energy demand in the developed and developing nations. This has prompted governments to look for alternative and renewable energy sources which in turn drives the business of Vestas, in case of wind energy systems.

Technological

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Legal

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Environmental

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Vestas SWOT and PESTLE analysis has been conducted by Mrinal Ojha and reviewed by senior analysts from Barakaat Consulting - an Ezzi IT and Business Consulting venture.

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