Siemens Energy Stock Plummets on Wind Power Worries. What GE Investors Need to Know.

A report by the German business news outlet WirtschaftsWoche said Thursday that Siemens is looking for support from the German government in the form of financial guarantees to help raise roughly $16 billion in capital. The company—whose main businesses are wind and gas power—said Thursday it wants to strengthen its balance sheet, but noted that it expects its fiscal 2023 results to be fully in line with guidance and that its gas and power businesses remain strong.

“The strong growth in order intake, particularly in the former Gas and Power business areas, leads to a rising need of guarantees for long-term projects,” Siemens said in a news release. “Considering this requirement, the Executive Board is evaluating various measures to strengthen the balance sheet of Siemens Energy and is in preliminary talks with different stakeholders, including banking partners and the German government, to ensure access to an increasing volume of guarantees necessary to facilitate the anticipated strong growth.”

Shares of Siemens dived about 36% in overseas trading, wiping out some €3.021 billion (about $3.2 billion) in market capitalization and marking the stock’s largest one-day percentage decline since late June.

Siemens’ wind business lost more than $2.5 billion in its fiscal third quarter, ended in June. The business faces a number of issues that are hampering the overall industry: cost inflation, fixed price contracts signed long ago, and constant regulatory uncertainty. A lot of wind assets are purchased and installed based on government incentives. Siemens also has faced some technical issues with its wind turbines.

In Thursday’s release, the company reiterated that Siemens Gamesa “is working through the quality issues and is addressing the offshore ramp up challenges.” It added that it expects the segment’s net losses and cash outflow for fiscal 2024 to surpass market forecasts.

Siemens Energy is a watch item for GE investors because the company is a lot like GE Vernova, the power generation business that GE plans to spin out in the second quarter of 2024. GE Vernova has a gas power generation turbine business and a wind energy business, along with other smaller pieces.

Both Siemens and GE said recently their gas power businesses are fine. GE’s gas power business reported $238 million in third-quarter operating profit, up 69% year over year. The operating profit margin was 6%. Siemens Energy’s business, excluding wind power, produced an operating profit margin of about 8.7% in the first nine months of fiscal year 2023. Siemens Energy’s fiscal year ends in September.

Wind is a different story for GE, too. Most of the problem is with offshore wind power, according to CEO Larry Culp. Offshore wind is a higher-cost application than onshore windmills. Still, GE is making progress. Its wind business lost $317 million in the third quarter, much narrower than the year-ago quarter’s $934 million loss.

GE stock fell 2.9% in recent trading while the
S&P 500
was down 1.1% and the
Dow Jones Industrial Average
slipped 0.6%.

One factor to keep in mind—and which likely is limiting GE stock’s losses—is the two companies’ relative size. Siemens Energy’s market capitalization is now about $6 billion. GE’s market value is about $121 billion, and its profitable aerospace division accounts for a majority of that.

In other words, the loss of roughly $3 billion in market value Siemens experienced is less than 3% of the value of GE stock. Still, Wall Street will likely compare GE Vernova to Siemens Energy as the spin approaches. That means investors should hope Siemens Energy can turn things around, even if they are a GE competitor.

Write to Al Root at [email protected]