Siemens Energy slumps after warning of longer Gamesa turnaround

Siemens Energy AG slumped by a record over escalating issues at Siemens Gamesa Renewable Energy SA, the latest in a long line of costly problems uncovered at the wind turbine unit.

The shares plummeted as much as 36% after the Spanish division uncovered worse-than-expected quality flaws at its onshore wind turbines, delaying turnaround efforts. Siemens Energy, scrapping its annual profit guidance, warned that additional costs may exceed €1 billion ($1.1 billion).

The German manufacturer has had years of troubles with Gamesa. The unit fell deep into the red due to rising costs of steel and other key raw materials as well as a string of technical problems with installed and unfinished wind turbines — complex products that contain hundreds of moving parts.

“This is a bitter setback,” Chief Executive Officer Christian Bruch told reporters Friday.

Siemens Energy last year moved to fully control Gamesa with a roughly €4 billion offer after three years of straight losses. The plan was to bolster oversight and get a turnaround going. In January, the parent was forced to cut its outlook once more after reviews at Gamesa uncovered costly turbine flaws. At the time, the company expressed confidence it had checked everything.

But the latest evaluation — part of new Chief Executive Officer’s Jochen Eickholt’s drive to get on top of issues that led to the ouster of three unit chiefs in five years — revealed even more quality deficiencies.

Some of the problems stem from rushing out new turbines too early in 2019 to counter fierce competition, Bloomberg reported last year. Gamesa also has faced difficulties scaling up its new onshore turbine model, dubbed the 5.X platform — a review of which is still ongoing.

“It is difficult to be sure that this is the ‘last’ charge,” Citi analysts led by Vivek Midha said Friday in an emailed note. “This will likely reduce investor confidence in the turnaround story.”

The protracted issues could also influence plans by Siemens AG to start selling down its 32% stake in its former energy unit after it listed in 2020. Last month, Siemens Chief Financial Officer Ralf Thomas flagged it could start divesting shares sometime during the next fiscal year starting in October, though plans haven’t been finalized yet. 

In contrast, the company’s gas turbine and transmissions divisions have been profiting from the rising demand for cleaner energy. 

Siemens Energy had upgraded its revenue expectations about a month ago after strong orders for energy transition technologies helped offset Gamesa’s deepening losses. The manufacturer stuck to its revenue guidance for the group and assumptions for Gas Services, Grid Technologies and Transformation of Industry. 

While unit chief Eickholt declined to say when the long-troubled unit will turn a profit, Bruch vowed that taking over Gamesa will eventually prove to be the right move.

“I still believe in the wind turbine business,” he said.