Siemens Energy stock drops 35% due to subsidiary’s wind turbine problems that may persist for years.

Siemens Energy’s shares dropped by 35% earlier today after the company abandoned its profit forecast and admitted to ongoing wind turbine issues. The company’s review of concerns at subsidiary Siemens Gamesa revealed a “substantial increase in failure rates of wind turbine components”. However, the market reacted negatively to the update.

Siemens Energy Faces Ongoing Wind Turbine Issues

According to a Thursday report, the Siemens Gamesa board has launched an “extended technical review” to improve product quality. Meanwhile, the parent company has revealed that the cost of the review is now “significantly higher” than originally expected, with a current estimate of over €1 billion ($1.09 billion). For Siemens Energy, it is currently impossible to accurately estimate the financial impact of the quality problems. It is also too early to predict the outcome of the review and its effect on business plans. Speaking on the wind turbine issues, Siemens Energy said:

“However, based on our initial assessment as of today, the potential magnitude of the impact leads us to withdraw the profit assumptions for Siemens Gamesa and consequently the profit guidance for Siemens Energy Group for fiscal year 2023.”

Siemens Energy CEO Christian Bruch has said that “too much had been swept under the carpet” concerning Siemens Gamesa. He added that the quality issues at the company were more serious than he had anticipated. The senior research analyst at Alliance Bernstein believes that while Siemens Energy can recover from the losses, the market is shocked by the recent developments. He explained:

“There’s a €17 billion service order book and that is delivering service on installed wind farms and in wind turbines for quite a number of years ahead – five years ahead, sometimes 10-year contracts – and to discover that a handful of your components aren’t working as you planned, that maybe you’ll need to go in and replace those components, that is a very large liability that you’re taking on.”

In addition, the research analyst questioned Siemens Energy’s estimate of component failures. The company said the component failures may occur in between 15% and 30% of its installed fleet of turbines. However, there is still uncertainty about where that liability ends.

An update is expected in August, when Siemens Energy may have more accurate estimates. The analyst noted that Siemens Energy may have resolved the issues at its subsidiary by then, concluding that “certainly it is an alarmingly large hit and it’s taken the market by surprise.”

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