The wind power industry is currently facing significant challenges, as evidenced by the recent troubles at Siemens Energy. The issues it is grappling with are not isolated to just one company – they are affecting the entire sector.
Struggling to Raise Capital
Siemens Energy’s wind business, known as Siemens Gamesa, is seeking assistance from the German government in the form of financial guarantees. It aims to raise approximately $16 billion in capital to bolster its balance sheet. Despite this need for additional funding, Siemens Energy remains confident that its fiscal 2023 results will align with expectations, highlighting the strength of its gas and power divisions.
Plummeting Market Value
The news of Siemens Energy’s difficulties had a devastating impact on investor confidence. In fact, the company’s market value suffered a loss of over $3 billion in just one day of overseas trading. This sharp decline in value was the steepest drop in the stock since late June, underscoring the gravity of the situation.
Siemens’ wind business also faces significant internal challenges. In its fiscal third quarter, which ended in June, it incurred losses exceeding $2.5 billion. These losses can be attributed to several factors plaguing the industry at large. Cost inflation, outdated fixed-price contracts, and regulatory uncertainty are all posing obstacles to growth. Furthermore, government incentives play a crucial role in driving the acquisition and installation of wind assets. Technical difficulties with Siemens’ wind turbines have also compounded the issue.
Despite these setbacks, the wind power industry remains resilient. While Siemens Energy looks to secure financial support and address its internal hurdles, it is essential for stakeholders in the broader sector, such as investors in wind power giant General Electric, to stay informed about these challenges. By closely monitoring the developments impacting Siemens Gamesa and other players in the industry, they can better navigate this complex landscape.
Siemens Gamesa Addresses Quality Issues and Offshore Ramp Up Challenges
In Thursday’s release, Siemens Gamesa reiterated its commitment to working through quality issues and addressing the challenges related to offshore ramp up. The company expects net losses and cash outflow for fiscal year 2024 to exceed market forecasts.
GE Investors Keep an Eye on Siemens Energy
Siemens Energy is of particular interest to GE investors due to its similarities with GE Vernova, the power generation business that GE plans to spin out in the second quarter of 2024. GE Vernova encompasses a gas power generation turbine business, a wind energy business, and other smaller components.
Both Siemens and GE have recently stated that their gas power businesses are performing well. GE’s gas power business reported a third-quarter operating profit of $238 million, a 69% increase compared to the previous year. The operating profit margin was 6%. Siemens Energy’s business, excluding wind power, achieved an operating profit margin of approximately 8.7% in the first nine months of fiscal year 2023. Siemens Energy’s fiscal year ends in September.
Wind Power Challenges for GE
Wind power presents a different story for GE, especially in offshore applications. CEO Larry Culp highlights that offshore wind power is a higher-cost endeavor compared to onshore windmills. Despite the challenges, GE is making progress in this area. The wind business reported a loss of $317 million in the third quarter, significantly narrower than the $934 million loss recorded in the same quarter last year.
Market Comparison and Impact on GE Stock
GE stock experienced a 2.9% decline in recent trading, while the S&P 500 was down 1.1% and the Dow Jones Industrial Average slipped 0.6%.
An important factor to consider, which likely limits GE stock’s losses, is the relative size of the two companies. Siemens Energy currently has a market capitalization of approximately $6 billion, whereas GE’s market value is about $121 billion, with a major portion attributed to its profitable aerospace division.
In other words, the roughly $3 billion decline in Siemens’ market value represents less than 3% of the value of GE stock. Nevertheless, as the spin of GE Vernova approaches, Wall Street will likely compare Siemens Energy to GE, despite being competitors. Therefore, investors should anticipate a turnaround from Siemens Energy.