VWDRY - Siemens Energy sinks by more than a third on severe wind turbine troubles

2023-06-23 12:54:12 ET

Siemens Energy's ( OTCPK:SMEGF ) ( OTCPK:SIEGY ) stock plunged by as much as 37% in Europe Friday, knocking more than €6B ($6.5B) off the company's market value, after it uncovered deeper than expected quality flaws at its wind turbine unit that could drive an additional €1B in costs.

As a result, the company scrapped its profit guidance for the year, alarming investors who were reassured just a month ago that the outlook for the unit would improve.

J.P. Morgan analysts said the warning came at a time when " expectations were building that the worst for the wind industry is now behind us."

"It is difficult to be sure that this is the 'last' charge... This will likely reduce investor confidence in the turnaround story," Citi analyst said.

Fixing the problem, which involves critical parts such as rotor blades and bearings and affects 15%-30% of the installed onshore fleet, will effectively wipe out more than a third of the profit the company expects to make performing maintenance on wind turbines it already installed, according to Bernstein.

Investors fear the same faults will crop up at other wind turbine manufacturers as a result of shared supply chains; shares in rival Vestas Wind Systems ( OTCPK:VWDRY ) fell ~6% Friday in European trading.

A fundamental design flaw is an even more worrying possibility ; turbine makers have been under pressure to make bigger, more powerful wind turbines and may have overstretched the technology, Carol Ryan reported in The Wall Street Journal .

More on Siemens:

• Financial and valuation comparison to sector peers
• Analysis: Siemens: Robust Q2 2023, Favorable Prospects
• Stock price return: Up 21.5% YTD, up 62.5% in the past 12 months

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