Siemens shareholders brace for Q3 results

• Siemens Gamesa is due to publish its Q3 results on 7th August
• The results will seek to clarify the depths of its turbine challenges
• The firm announced a €500m hit in January and €1bn hit in June

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If you’re heading on summer holiday soon, please listen carefully to any safety announcements. A knowledge of the brace position might be useful when Siemens Energy releases its next set of financial results in three weeks' time.

On 7^th August, Siemens Energy is set to publish its third-quarter results, in which it plans to share more details on the cost of fixing faulty wind turbines. In January, the company announced it was going to cost almost €500m to fix problems in its turbine models; and it followed this in June by announcing a further hit of €1bn, which will be spread over “a series of years”. Shareholders will be prepared for more turbulence.

We have seen indications of the depths of the company’s difficulties this month.

News emerged in early July that Siemens Energy has set up a taskforce to find out how bad the troubles are in its turbine subsidiary Siemens Gamesa. Those €1bn losses announced in June had an immediate financial impact on Siemens Energy, which saw its share price fall 39% to €14.85 in the immediate aftermath, although it has since rallied. This reduced the company’s total market value by almost €8bn at one point, and forced the firm to withdraw its profit guidance for 2023 too. Despite the recent rally, ripples from the announcement have continued.

Siemens Gamesa’s quality issues are reportedly focused on its 4.X and 5.X onshore models, but the headache for Siemens Energy has become bigger than just turbines. 

Siemens Energy is now under pressure from its shareholders, including 35% owner Siemens, because the problems with the turbine models may also point the finger at management for not spotting the issues during due diligence processes. This has gone beyond a simple story of troublesome turbines.

This is why Siemens Energy is taking the problems very seriously. Its taskforce is made up of internal specialists, but can draw on external expertise too. This is due to work in parallel with the committee of members of Siemens Energy’s supervisory board that is also trying to get to the bottom of these difficulties. Christian Bruch, chief executive at Siemens Energy, has been critical of the culture of Siemens Gamesa, saying that: “Too much has been swept under the carpet.” 

In addition, the company experienced another difficult headline earlier this month when it emerged that a turbine blade had broken on one of the 5.X turbines at the 434MW Santo Agostinho wind project in Brazil. Siemens Gamesa said there had been no injuries and that it was investigating the cause of the fault.

For those in the industry, the big question is whether the problem of faulty turbines is unique to Siemens Gamesa, or whether this is indicative of a broader issue. 

Global competition

There has been plenty of discussion in the last five years about the impact that the slim profit margins in the sector would have on manufacturers. Firms throughout the wind supply chain have been squeezed as utilities have kept bidding lower prices in competitive auction processes. This has ratcheted up pressure on turbine makers to keep releasing ever-larger turbine models to deliver greater economies of scale.

Western turbine makers are in a uniquely difficult position. They are being forced to invest in research and development of bigger and more efficient turbines, while also coping with slimmer profit margins that have forced many of the biggest names to frequently restructure in the last five years. In that context, the problems at Siemens Gamesa indicate an industry facing challenging growing pains.

It is also worth noting that Siemens Gamesa is not the only turbine maker that has been grappling with turbine reliability. A couple of years ago it was GE Renewable Energy making the headlines for faulty turbines and blade failures, and the company's work to fix these issues is still ongoing. Last October, GE chief executive Larry Culp shared an update saying that the work was progressing well, while reiterating that the firm’s focus was on producing fewer, simpler models. In GE’s case, the indication was that its previous focus on delivering ever-more-complex turbines had harmed quality.

The warnings from the insurance community have been getting louder too.

In May, GCube Insurance warned that the race for ever-larger offshore turbines was damaging the sector due to more mechanical breakdowns, component failures and serial defects. It said that 55% of all insurance claims by frequency were a result of component failures during construction of 8MW-plus offshore turbine models. There has been a concern for as long as we can remember that untested offshore turbine models are being installed at new projects, but now the evidence backs that up.

The challenge may be slightly different in onshore wind. Yes, turbine makers have been looking to build larger onshore wind turbines, but they have also sought to add more complexity to their portfolios with, for example, new low-wind models. It comes as no surprise to us that the increased complexity of turbines, and the race to get them out working in the field, will sometimes bring with it technical complications.

One theory might be that Siemens Gamesa and GE have faced a special challenge as they are part of multinationals. Could that explain why we haven’t heard similar reliability concerns for wind specialists such as Nordex and Vestas? Perhaps, but Bruch’s public concerns about Siemens Gamesa culture would pre-date its recent integration into Siemens Energy; and GE has wind specialists too. The greater focus on Siemens and GE may simply be they are internationally-recognised names.

For Siemens Energy, the next chapter is out on 7^th August. It will hope to provide lighter summer reading than it has managed so far this year.