Nordex, the wind turbine manufacturer that's quietly become a global powerhouse, just held its Q1 2024 earnings call. While analysts dissected the strong order intake and steady margin improvement, a subtle, yet potentially groundbreaking detail slipped through the cracks. Nordex might be significantly underselling its long-term potential, particularly with its planned re-entry into the lucrative U.S. market.

The key lies in Nordex's insistence on achieving "average profitability" in the U.S., despite the massive subsidies offered by the Inflation Reduction Act (IRA). On the surface, this appears conservative. However, a deeper look suggests Nordex could be holding a winning hand, ready to leverage the IRA for volume growth while maintaining a healthy margin profile.

Here's why. The IRA offers generous incentives for locally sourced wind turbine components, including $0.05 per watt for nacelles and $0.02 per watt for blades. Nordex, shrewdly planning to leverage its existing Iowa nacelle plant and import blades, will qualify for these subsidies.

Now, let's do some math. Assume Nordex secures a modest 500 MW of U.S. orders by 2025, a figure well within their historical 10%-15% market share. Using an average turbine capacity of 5 MW, this translates to 100 turbines. The IRA subsidy for nacelles alone would be a whopping $12.5 million (500 MW * $0.05/W). If blade subsidies are included, the total incentive could reach $22.5 million.

This is significant. Even if Nordex operates with its projected "average" 8% EBITDA margin in the U.S., the IRA subsidies could represent a 2-4 percentage point boost to their overall group margin. This scenario, however, assumes that Nordex maintains the same pricing strategy in the U.S. as it does in Europe. The reality might be far more interesting.

In Europe, where Nordex enjoys market leadership, it wields considerable pricing power. The company has successfully implemented price increases over the past two years, lifting margins despite inflationary pressures. In the U.S., however, they position themselves as "price takers," suggesting a willingness to follow the pricing set by the two dominant players, GE and Vestas.

Could this be a clever smokescreen? By initially positioning themselves as followers, Nordex might secure significant volume on the back of the IRA while quietly enjoying a margin uplift far exceeding their European levels. This strategy would allow them to avoid rocking the boat and igniting a price war, all while building a robust U.S. presence.

This hypothesis is further strengthened by Nordex's confidence in achieving its 8% margin target even before factoring in the IRA's impact. The company outlines several internal levers, including clearing its legacy backlog, improving service margins, and streamlining German operations. These initiatives, combined with the volume potential unlocked by the IRA, paint a picture of a company poised to outperform its own expectations.

Remember, Nordex isn't just a European wind titan; they've also ventured into green hydrogen, forming joint ventures for both project development and electrolyzer manufacturing. These initiatives, while still in early stages, demonstrate a forward-thinking approach and a commitment to renewable energy solutions beyond wind turbines.

Order Intake Growth

Nordex has seen substantial growth in order intake over the past year, with a notable surge in Q1 2024. This chart, based on data from their earnings calls, illustrates this positive trend.

Nordex's Q1 2024 earnings call might not have been flashy, but it contained a subtle hint of a bold strategy. The company's seemingly conservative approach to the U.S. market could be a masterstroke, allowing them to reap the benefits of the IRA while positioning themselves for long-term success. As the wind energy market expands and the demand for clean energy solutions surges, Nordex might just be the hidden gem poised to blow past its 8% margin goal and generate significant shareholder value.

"Fun Fact: Did you know that Nordex's Delta4000 turbine, a key driver of their recent success, holds the record for the highest wind turbine ever installed in Germany, reaching a height of 244 meters?"