Siemens Energy: hurricane warning highlights industry-wide headwinds

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Even by the standards of the wind industry’s turmoil, Siemens Energy’s warning is shocking. Its struggling turbine-making unit, Gamesa, has been hit by quality problems, falling profits and slowing growth. The market has wiped off more than 30% of the German group’s market value, or about 6 billion euros.

A technical review by Gamesa revealed that between 15% and 30% of its turbine models had faulty components. Replacing components before packaging can cost upwards of a billion euros. In addition, Gamesa may be derailed by rising costs and slower-than-expected capacity recovery.

From a financial point of view, this would hit Siemens Energy hard. The company has withdrawn its 2023 profit guidance, which was slated to exclude exceptional items, and the company is barely breaking even. It also raises the question of how long it might take Gamesa to turn things around. The wind turbine unit, which accounts for about a third of Siemens Energy’s 32 billion euro revenue in 2023, is expected to be profitable in 2024, Berenberg said.

With the warning seemingly out of the blue, investors’ confidence in the group’s forecasting ability will also be shattered.

That may explain the stock price’s reaction, which has lost about half of Gamesa’s value at 12 billion euros when Siemens bought a minority stake earlier this year. In other words, the group’s share price of 15 euros per share, excluding Gamesa, is worth around 11 euros per share, according to Bernstein’s Nick Green.

Siemens Energy’s warning underscores the headwinds facing the wind power industry as a whole. A tight supply chain means a higher chance of quality problems. Competitive pricing means manufacturers are not adequately compensated for the risk of something going wrong. And service contracts on the order book — a waste of cash in good times — could become an unavoidable liability in rough seas. While wind energy is a growing business, companies in the field are trying to pick up the pace.