TPI Composites (TPIC) Risk Analysis

Defects in the wind blades we manufacture are unpredictable and an inherent risk in manufacturing technically advanced products that involve a significant amount of manual labor and processes. Defects may arise from multiple causes, including design, engineering, materials, manufacturing and component failures as well as deficiencies in our manufacturing processes. Under our supply agreements, we warranty the materials and workmanship of the wind blades while our customers are responsible for the fitness of use and design of the wind blades. We have experienced multiple wind blade failures and defects at some of our facilities, and we may experience failures or defects in the future. Wind blades that we have manufactured have also failed in the field. Any wind blade failures or other product defects in the future could materially harm our existing and prospective customer relationships. Specifically, negative publicity about the quality of the wind blades we manufacture or defects in the wind blades supplied to our customers could result in a reduction in wind blade orders, increased warranty claims and reserves, product liability claims and other damages or termination of our supply agreements or business relationships with current or new customers. Any of the foregoing could materially harm our business, operating results and financial condition. We provide warranties for all of the wind blades and precision molding and assembly systems we produce, including parts and labor, for periods that typically range from two to five years depending on the product sold. We also have offered extended warranties in certain situations to resolve outstanding warranty claims and may offer extended warranties to our customers in the future. Our estimate of warranty expense requires us to make assumptions about matters that are highly uncertain, including future rates of product failure, repair costs, shipping and handling and de-installation and re-installation costs at customers' sites. Our assumptions could be materially different from the actual performance of our products and these remediation expenses in the future. The expenses associated with wind blade repair and remediation activities can be substantial and may include changes to our manufacturing processes. If our estimates prove materially incorrect, we could incur warranty expenses that exceed our reserves, increase our future warranty reserves, and we could be required to make material unplanned cash expenditures, which could materially harm our business, operating results and financial condition.

We rely upon third parties for raw materials, such as fiberglass, carbon fiber, resins, foam core and balsa wood, and various components for the products we manufacture. Some of these raw materials and components may only be purchased from a limited number of suppliers. Current geopolitical climate, and the economic environment generally, including with respect to inflation and trade policies, continue to evolve and affect supply chain performance and underlying assumptions in various ways – specifically with volatility in commodity, energy, and logistics costs. However, the overall pricing for the raw materials that we source decreased in 2024 compared to 2023 due to decreases in pricing and logistics costs. We expect to see a further decrease in material pricing in 2025. If the prices for these raw materials and logistics costs revert back to the levels we experienced in 2021 and 2022, such elevated price levels could have a material impact on our results of operations. Additionally, our ability to purchase the appropriate quantities of raw materials is impacted by our customers' transitioning wind blade designs and specifications. As a result, we maintain, closely monitor and manage inventory and acquire raw materials and components as needed and with consideration to lead time factors. Due to fluctuating international demand for these raw materials from many industries, and extended logistics lead times, we may be unable to acquire sufficient quantities or secure a stable supply for our manufacturing needs. One of our customers sources all of the critical raw materials that we use to produce such customers' wind blades. Since we do not source procurement of these raw materials for this customer, we have fewer controls and remedies to mitigate raw material and supply chain risks and disruptions relating to such raw materials for such customer. In 2024, we procured approximately 20% of our raw materials from China, so any ocean logistic delays, weather events, strikes, other force majeure events or geopolitical developments impacting China could disrupt our supply chain. In addition, a disruption in any aspect of our global supply chain caused by transportation delays, customs delays, cost issues or other factors could result in a shortage of raw materials or components critical to our manufacturing needs. Any supply shortages, delays in the shipment of materials or components from third party suppliers, or changes in the terms on which they are available could disrupt or materially harm our business, operating results and financial condition. Ongoing inflationary pressures have caused and may continue to cause many of our material, labor, and other costs to increase, which can have adverse impacts on our results of operations. The government of Mexico increased minimum wages approximately 20%, 20% and 12%, effective January 1, 2023, 2024 and 2025, respectively. The government of Türkiye increased minimum wages approximately 55%, 34%, 49% and 30%, effective January 1,2023, July 1, 2023, January 1, 2024 and January 1, 2025, respectively. While our customer contracts allow us to pass a portion of these increases to our customers, we were not be able to recover 100% of the wage inflation. As a result of the inflationary pressures in Türkiye and increased competition from Chinese wind blade manufacturers, our competitive position in Türkiye has been adversely impacted and demand for our wind blades in Europe has declined. In December 2024, we committed to a restructuring plan in Türkiye in order to rationalize our workforce in response to this lower forecasted demand. As a result, we recorded approximately $9.6 million in restructuring charges for severance and other one-time termination benefits during the fourth quarter of 2024. If our manufacturing facilities in these countries continue to experience wage inflation at these levels and the increased costs in local currency are not offset with favorable foreign currency fluctuations, such elevated wages could further deteriorate our competitive position, and have a material impact on our results of operations and financial condition.

Substantially all of our revenues are derived from three wind blade customers. Vestas, GE Vernova and Nordex accounted for 24.4%, 34.9% and 33.2%, respectively, of our total net sales for the year ended December 31, 2024, and 36.3%, 25.0% and 30.8%, respectively, of our total net sales for the year ended December 31, 2023, and 37.3%, 21.4% and 33.6%, respectively, of our total net sales for the year ended December 31, 2022. Accordingly, we are substantially dependent on continued business from our current wind blade customers. If one or more of our wind blade customers were to reduce or delay wind blade orders, file for bankruptcy or become insolvent, fail to pay amounts due or satisfactorily perform their respective contractual obligations with us or otherwise terminate or fail to renew their supply agreements with us, our business, financial condition and results of operations could be materially harmed.

The U.S. wind energy industry has been dependent in part upon governmental support through certain incentives including federal tax incentives and state RPS programs and may not be economically viable if a large number of these incentives are not continued. Government-sponsored tax incentive programs including the PTC, and the Investment Tax Credit (ITC) have supported the U.S. growth of wind energy. In August 2022, the PTC was extended until the later of 2032 or when greenhouse gas emissions have been reduced by 75% compared to 2022. In addition, a new advanced manufacturing production tax credit (AMPC) was created that can be claimed for the domestic production and sale of clean energy components, such as wind blades. Although the IRA is expected to help accelerate the transition to renewable energy sources in the long-term, there is market uncertainty in the near-term as the current U.S. Presidential administration has issued executive orders that have impacted the onshore wind market, including halting the issuance of permits and leases for new wind projects on public lands in the U.S. pending additional review from multiple federal agencies. There are also numerous policies and regulations in the EU and other international markets that are designed to promote wind and renewable energy. While long-term onshore market growth in Europe remains in sight, the economic viability of pursuing that demand with European-based manufacturing is becoming increasingly challenging. While we have successfully competed with Chinese wind blade manufacturers for years, their recent aggressive push to expand their presence in Europe and other regions outside of North America, supported by the Chinese government, has added to the challenging competitive environment outside of the U.S. Unlike the U.S., which has implemented tariffs to protect against unfair competition and tax laws to encourage near shoring and domestic manufacturing, we believe it is unlikely that European governments will take similar steps to meaningfully help suppliers like TPI that supply passive components to our OEM customers. The implementation of the Foreign Subsidies Regulation (FSR) by the EU and its recent aggressive actions to combat unfairly subsidized Chinese products are encouraging, but their focus to date has been on active parts of wind turbines versus the passive parts, such as the blades that we manufacture for our customers. There can be no assurance that governmental programs or subsidies for renewable energy such as the IRA will remain in effect in their present form or at all, or that the required transmission infrastructure expansion occurs, and the elimination, reduction, or modification of these programs or subsidies could materially harm wind energy programs in the U.S. and international markets and materially decrease demand for the wind blades we manufacture and, in turn, materially harm our business, operating results and financial condition.