Vestas, which is based in Aarhus, Denmark, said the layoffs were part of efforts to reduce fixed costs by more than €150 million ($191 million) as it deals with tough competition and a market slowdown following the global recession in 2008-2009.
Vestas said it would lay off 1,300 employees in Denmark; 450 of those would come in Spain, Italy, Germany and Sweden while 400 would go in China and 182 in the United States. The company is preparing for further cuts if the U.S. doesn't extend its Production Tax Credit for renewable energy, which expires at the end of 2012.
"This can result in layoffs of an additional 1,600 employees at the factories in the USA," Vestas said in a statement.
In 2010, Vestas was awarded about $51 million in federal tax credits in the U.S., where it has invested more than $1 billion in four facilities in Colorado. The U.S. operations are headquartered in Portland, Oregon.
The Danish company expanded rapidly until the economic downturn slowed investments in wind power. In addition, Vestas has lost market share to Chinese competitors.
Sluggish sales have already forced the company to slash its forecasts for 2012 twice. It has also abandoned its 2015 sales target of €15 billion ($19.1 million) and the aim of reaching a profit margin of 15 per cent.
Vestas shares fell 4 per cent to 60.30 kroner ($10.32) in Copenhagen after the layoffs were announced.
Danish Prime Minister Helle Thorning-Schmidt called it "very, very sad news" for the country, which seeks to profile itself as a green energy leader.
"This is one of the businesses that we thought would be the new way of doing green technology," she said. "Despite the setback that we have seen right now, this is and will be the right approach."
Last year, Vestas laid off 3,000 workers after posting a 24 per cent drop in profits in the third quarter.
Sydbank analyst Jacob Pedersen said the cutbacks were a "big step in the right direction" to make the company more competitive.
After the cuts, Vestas said it will have around 20,400 staff and 25 factories worldwide.
Denise Bode, chief executive of the American Wind Energy Association, said the announcement by Vestas shows the danger to U.S. manufacturing jobs if Congress puts off extension of the renewable energy tax credit, which is scheduled to expire at the end of the year.
"The layoffs have begun, and every week that goes by without an extension puts these good American jobs at greater risk," Bode said.
Wind energy is one of the nation's fastest-growing industries, Bode said, and manufacturers such as Vestas have invested billions of dollars in the U.S. economy.
Renewal of the tax credit "needs to be first on the list of priorities to be included when Congress gets back to work again in a few weeks," she said.
Sen. Jeff Bingaman, D-N.M., chairman of the Senate Energy and Natural Resources Committee, said the U.S. needs a stable, long-term tax policy that allows companies to plan over multiple years.
"Unfortunately, the type of short-term extensions Congress is prone to passing puts American jobs in jeopardy," Bingaman said.
Associated Press writer Matthew Daly in Washington, D.C., contributed to this report.