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The world’s largest producer of clean fuels for cars and planes has pledged to dramatically cut costs, including firing a tenth of its workforce, after a disastrous year in which its share price collapsed more than 60 per cent.
Heikki Malinen, chief executive of Neste, the Finnish renewable diesel and sustainable aviation fuel (SAF) specialist, said the company had spent nearly $10bn transforming itself from an oil refiner into a leader in green fuels, and then found that the market had failed to grow as expected.
“When you are building something new for the future, you just don’t know 100 per cent,” Malinen told the Financial Times. “We believe there is a valid case for decarbonisation, and that it will happen, but the journey will be volatile and non-linear”.
Malinen, who took over as Neste’s boss in October, is the latest executive to concede that the transition to cleaner energy will be slower than anticipated. This month, BMW warned of a “rollercoaster ride” in the US transition to electric vehicles and said it would keep investing in combustion engines and hybrid technology.
“Companies and governments made very bullish statements on their intention to decarbonise. What happened? We had the war in Ukraine, and the inflation spike, and the mood for decarbonisation just went away,” Malinen said. “Neste had decided to deploy a lot of capital and now here we are.”
Europe-wide mandates to force airlines to use SAF, which Neste makes from used cooking oil and results in much lower carbon emissions, were watered down and the market has stalled this year. Voluntary demand among airlines has failed to grow because SAF is two to three times more expensive than jet fuel.
“Our markets have changed and the company’s financials are where they are,” Malinen said at a capital markets day in London last week. Neste posted €168mn of earnings before interest, taxes, depreciation and amortisation in the fourth quarter, much lower than a consensus estimate of €310mn.
The company said its margins on renewable fuels were nearly 40 per cent below expectations and warned that the market for renewable fuels would be “challenging” next year.
Neste will cut operating costs by €250mn a year, cancel its payouts to shareholders and fire 600 staff, as it faces what Malinen said was a financial position that needed “immediate and urgent action”.
But Malinen maintained that while the biofuels market was going through short-term pain, he was optimistic about the company’s prospects, even after a 63 per cent slide in the stock over the past year.
“If you look at SAF in particular, there isn’t another option,” he said. “I am not in the pessimistic camp that this is a dead end.”
Politicians in Europe could help the adoption of SAF by changing the current mandate so that it scales up linearly, rather than increasing the SAF requirement from 2 per cent of all aviation fuel to 6 per cent in 2030.
“The problem . . . is that if public policy is extremely volatile and unpredictable, it makes it difficult for producers to balance their capacity build-up. And then you have points of volatile oversupply and undersupply,” he said. “This is a new industry. Markets are fairly thin, and when you have thin markets, prices can gyrate all over the place.”
He said Neste would continue to invest in a giant plant in Rotterdam, which has been delayed by a year to 2027 and whose costs have increased by €600mn to €2.5bn. The plant will raise Neste’s renewable fuels capacity to 6.8mn tonnes a year, from about 5.5mn tonnes, cementing its market-leading position.
“I think it is wise to do,” said Malinen. “We play the cards we have. We are doing the utmost to stay on the road, and eventually there will be a tailwind.”
