There’s no way to sugar coat it: This has been a miserable year for wind turbine manufacturers. The renewable energy businesses of all three major Western players — Vestas (VWDRY -3.90%), Siemens Gamesa (GCTAY 0.81%)AND General Electric (GE -1.47%) — are set to lose money in 2022.
That said, there is clear evidence of a turnaround and investors should look for a gradual improvement in the sector’s fortunes through 2023. Here’s why.
Not the year they were expecting
A quick look at the guidance these three wind energy companies gave at the start of their relative fiscal years (Siemens Gamesa’s fiscal year ended at the end of September) compared to their most recent results and outlook shows what a challenging year it was.
Siemens Gamesa lost money in its 2022 fiscal year and Vestas is on track to do the same — but both forecast profits at the start of their financial years. Meanwhile, GE Renewable Energy is expected to lose $2 billion instead of the $600 million loss at the midpoint it guided for earlier in the year.
|
company |
The original Outlook for 2022 |
Outlook/Recent Results |
|---|---|---|
|
Vestas |
Revenue EUR 15 billion to EUR 16.5 billion, adjusted EBIT margin of 0%-4% |
Estimated revenue of €14.5 billion to €15.5 billion, adjusted EBIT margin of negative 5% |
|
GE Renewable Energy |
Low single-digit revenue growth, operating loss of $500 million to $700 million |
Estimated loss of $2 billion |
|
Siemens Gamesa |
Revenue of €9.5 billion to €10 billion, adjusted EBIT margin of 1%-4% |
Actual revenue of €9.8 billion, adjusted EBIT margin of negative 5.9%. |
Data source: Company presentations. EBIT=earnings before interest and tax.
What went wrong in 2022
The industry was hit by a perfect storm this year. Rising raw material prices, rising transportation costs and supply chain disruptions and component shortages weighed on margins as all three continued to work through orders secured years ago in a much better environment. Throw in rising interest rates and their negative impact on funding costs, and it’s no wonder conditions got so bad.
Consequently, all three have announced job cuts, with GE Renewable Energy laying off about 20% of its US wind workforce. Siemens Gamesa changed its management and operating model and has a turnaround strategy in place. Meanwhile, the main man responsible for the turnaround at GE Power, Scott Strazik, is now charged with turning around GE Renewable Energy.
Turnaround plans
The turnaround plans at bitter rivals Siemens Gamesa and GE Renewable Energy have much in common. Both are determined to cut costs and focus on competing in their core geographies where they can secure profitable orders.
It all points to the improvement of price discipline. In short, wind farms will have to get used to paying higher prices for wind turbines. GE, Siemens Gamesa and Vestas will seek to “scramble” secured orders at relatively low prices while securing new orders at higher prices.
The good news is that this is exactly what is happening. GE management has noticed improvement in order prices. Siemens Gamesa’s average selling price for onshore orders was €820,000 per megawatt in 2022 compared to €650,000 per megawatt in 2021.
Data from industry leader Vestas also reflects improving prices across the industry. As you can see below, there has been a significant improvement in new order pricing at Vestas, which speaks well across the industry. All three companies are trying to improve prices, and the data from Vestas is a clear sign of improvement that is likely to be emulated at GE Renewable Energy.
Data source: Vestas presentations.
Is GE Renewable Energy Back?
There is no quick fix for GE’s most troubled business. However, the improvement in prices across the industry and the optimism among buyers created by the Inflation Reduction Act — which extended the tax credit for wind farms — suggests that an end process is firmly in place.
As such, don’t be surprised if GE Renewable Energy finishes before the end of next year, and if all three of these companies come out of 2023 in much better shape than they’re entering it.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
