Wärtsilä Expanding Engine Capacity Again as Data Center and Power Plant Orders Fill Out 2028 Production Slots
Special call on June 23, 2026 reveals accelerated capacity expansion and strong order momentum across Energy and Marine segments
Wärtsilä disclosed on a special investor call that production slots for medium-speed engines are nearly fully committed through 2028, with even 2029 capacity starting to fill as the company races to meet surging demand from data centers and utility-scale power projects. CFO Arjen Berends revealed that the company announced a second phase of capacity expansion in May because supply chain commitments weren't secured when the initial expansion was announced in February, underscoring the logistical challenges of scaling production this aggressively.
Capacity Expansion Driven Primarily by Energy Demand
The company's two-step capacity expansion approach reflects the complexity of ramping production at this scale. Berends explained that "in the first capacity expansion, I would say the majority dependency was very much on our own facilities," while the second phase required "more investments related to supply chain, machining capacity either at supplier sites or in our own facility." The company expects the expanded capacity to come online in Q1 2028 and Q1 2019, representing increases of 30% and 35% respectively.
The majority of this expansion targets Energy segment production, not Marine. When pressed on whether Marine equipment sales would see proportional increases, Berends clarified that "the majority of the capacity expansion goes to Energy" and investors should use that assumption in their models. The company is currently running factories at what Berends characterized as "100% capacity" utilization, with minimal fluctuation.
Brazilian Tender Window Closing Rapidly
Time is running out for developers who won capacity in Brazil's recent power auctions. Berends stated bluntly that for customers who haven't finalized equipment orders, "if they are not concluding within weeks, I would say, the slots are gone. At least the slots are gone for the time that they require it." The company has announced at least two orders from Brazilian auction winners and is negotiating with several more, with delivery requirements concentrated in 2028 and 2029.
The situation illustrates broader capacity constraints across the industry. Berends noted that some Brazilian developers quoted Wärtsilä equipment in their auction bids without even contacting the company, leaving them scrambling for capacity after winning awards. The company has made conditional commitments to some customers with firm decision deadlines, but won't hold slots indefinitely.
Data Center Pipeline Remains Strong Despite Limited Recent Announcements
While Wärtsilä hasn't announced additional data center orders since the 800 MW project disclosed earlier, Berends emphasized the company tries "to report as much as possible the orders that we get" but requires customer permission. The pipeline remains "strong" with projects at various stages of negotiation, though timing remains volatile. Berends noted that projects can disappear suddenly due to permitting issues or other factors, but new opportunities typically fill the void quickly, with some deals closing "within 4 to 6 weeks" from initial contact.
The company's sweet spot remains 50 to 400 MW installations, where medium-speed engines offer advantages in fuel efficiency and water consumption versus gas turbines. For larger projects exceeding 400 MW, Wärtsilä can still compete effectively when water scarcity is a concern, as "turbines need a lot more water than what the engine is." Berends confirmed the company is seeing repeat orders from some data center customers, though he declined to discuss customer concentration.
On competitive dynamics, Berends reported no major changes in the competitive landscape, with no significant new entrants from fuel cells or other technologies. When asked about developing even larger engines to capture bigger projects, he dismissed the idea, noting that developing and certifying a new engine platform "takes a lot of time and effort" and by the time it reached maturity "the market is probably totally different."
Energy Storage Business Exits via 50-50 Joint Venture
Wärtsilä announced on June 15 the formation of a 50-50 joint venture with Germany's RCT Solutions for its energy storage business, effectively exiting a segment that contributed just EUR 700 million in 2025 revenue and EUR 23 million in operating profit. The deal transfers less than 5% of Wärtsilä's total net assets and will result in losses of EUR 40 million to EUR 50 million for the parent company in 2026, with the joint venture itself not expected to generate positive results until late 2027.
Until closing, expected in Q3 pending regulatory approvals, the storage business will be reported as discontinued operations. After closing, Wärtsilä's 50% stake will be accounted for as share of results in associated companies, which under new IFRS 18 standards will move from operating result to results from investing activities starting in 2027. The company will eliminate separate segment reporting for storage in Q2 results and will stop providing demand guidance and financial targets for the business.
The cash impact will be "minor negative" as Wärtsilä transfers net assets including advance payments received from customers. Berends explained the joint venture will likely take R&D write-downs that comprise a "sizable portion" of the EUR 40 million to EUR 50 million full-year loss guidance, with Wärtsilä's 50% share flowing through the share of results line.
Portfolio Restructuring Complete After Four Divestitures
The storage joint venture marks the final step in Wärtsilä's portfolio rationalization. The company completed divestitures of Automation Navigation Control Systems in July 2025, Marine Electrical Systems in October 2025, and both Gas Solutions and Water & Waste on June 1, 2026. These transactions eliminated EUR 900 million from the order book in 2025 and will adjust it by another EUR 650 million in Q2 2026 reporting. Annual revenue from divested businesses totaled EUR 665 million in 2025.
Berends emphasized that "portfolio business have no remaining activities anymore after Q2," leaving Wärtsilä as a pure-play dual-segment company reporting only Marine and Energy, with other business activities representing primarily joint venture income.
Marine Outlook Improving as Fleet Age Pressures Mount
While Energy dominates the capacity expansion story, Berends expressed growing optimism about Marine prospects. "The ship age has been as old as it's ever been. Yards capacity is ramping up much faster than what we thought even 1 year ago and I think also something big is coming in Marine," he said. The company sees particularly strong potential in ferry replacements, noting "ferries are very old. So there needs to be a new build cycle at some point of time. It's amazing how long it takes actually before it kicks off, but we see more and more activity."
On the 2-stroke engine acquisition opportunity at MAN Energy Solutions (Everllence), Berends poured cold water on prospects, calling the situation "less and less appealing." Volkswagen reportedly wants to retain roughly 45% ownership, pricing is "quite high," and separating 4-stroke from 2-stroke creates complications. "To be honest, I don't think it will end in our favor," Berends stated.
R&D Spending Structurally Higher, CapEx Surging
Research and development spending will remain elevated at "4% plus" of sales, up from the historical 3% level, with the absolute amount rising as revenue grows. The capacity expansion CapEx comes "largely on top" of normal replacement spending of 2% to 3% of sales. Berends indicated the company is "comfortable" maintaining a strong balance sheet given geopolitical uncertainties, stating "it's also not a bad situation to have in a time when there is lots of things happening also geopolitically to have a solid balance sheet."
On capital allocation beyond CapEx and R&D, Berends noted M&A opportunities are limited to "small bolt-ons" with no large transactions visible. The company paid out 100% of EPS in dividends last year through a combination of regular and extraordinary distributions, but offered no commitment to repeat that in 2026.
Middle East Supply Chain and Service Impact Minimal
Tensions in the Strait of Hormuz have not materially disrupted Wärtsilä's operations. The company has been "stocking a little bit extra" in anticipation of higher factory utilization, and critical supply chain components sourcing from Europe and Asia don't typically transit the strait. Berends noted "I don't know of any immediate urgent case that some parts are stuck in the Strait of Hormuz, not at all." Service impact is limited because the merchant fleet transiting the region primarily uses 2-stroke main engines where Wärtsilä has smaller market share.
For Q2 delivery patterns, Berends indicated "the majority of our sales volumes are actually in the second half of the year" for energy equipment, characterizing Q2 as "a good quarter" but not the peak period. The company maintains its strategy of securing advance payments exceeding 10% of order value and remaining cash positive throughout project execution, with no change in customer willingness to provide advances despite industry-wide capacity constraints.