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BUSINESS

Siemens eyes major revamp as energy woes sap profit

Falling demand for gas turbines weighed on Siemens's quarterly earnings Thursday, but the German conglomerate stuck to its confident outlook as it unveiled a major revamp to make its industrial divisions more profitable.

Siemens eyes major revamp as energy woes sap profit
Photo: DPA

Net profit at the sprawling group plunged 14 percent to 1.2 billion euros ($1.4 billion) in the third quarter of its financial year, compared with the same period a year earlier.

Revenue at Siemens — which also builds trains, industrial robots and medical scanners — fell four percent to 20.5 billion euros, slightly below analysts' expectations.

Siemens blamed “a sharp decrease in profit” at its ailing power and gas unit, as well as overall “negative currency effects” and higher taxes for the slump.

Quarterly income was driven by the group's digital services, led by a spike in profits at its factory automation arm.

The group also highlighted a 16-percent increase in overall orders, boosted by demand for big-ticket items like trains and wind turbines, while orders in its Healthineers medical devices business were flat.

“Our global team delivered a strong quarter, highlighted by outstanding order intake,” chief executive Joe Kaeser said in a statement.

“We diligently address our opportunities and challenges going forward,” he added.

Siemens said it would embark on a major restructuring in October, trimming its industrial units from five to three to make them more independent and better able to respond quickly to market demands.

The overhaul has been spurred by troubles in Siemens' power and gas unit, which has long been grappling with “structurally” lower demand as energy trends shift towards renewables.

Some 7,000 jobs are set to be slashed at the division.

As part of its new “Vision 2020+” revamp, announced in a statement late Wednesday, Siemens said it would strengthen its digital offerings, focussing on the internet of things, industrial automation and electric mobility.

Looking ahead to the remainder of its financial year, Siemens confirmed it expects “modest growth” in revenue, adjusted for currency and portfolio effects.

The sweeping changes planned at Siemens come as conglomerates around the world are offloading units and reshaping unwieldy businesses in a bid to keep pace with fast-changing industry landscapes.

“Today we are a single tanker. We must become a coordinated and efficient fleet of ships,” Kaeser told German media last year.

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BUSINESS

Is Germany’s Volkswagen becoming ‘the new Tesla’ as it ramps up e-vehicle production?

When Volkswagen chief executive Herbert Diess joined Twitter in January, he used his first tweet to warn pioneering electric car maker Elon Musk that he was coming after him.

Is Germany's Volkswagen becoming 'the new Tesla' as it ramps up e-vehicle production?
ID.3 cars in the Zwickau, Saxony production plant in March. Photo: DPA

The bold proclamation raised some eyebrows, coming from a carmaker better known for its 2015 “dieselgate” emissions cheating scandal than its green credentials.

But all that has changed since the German group announced an offensive to dominate the electric car market globally by 2025, vowing to set up six battery factories in Europe by the end of the decade.

“Volkswagen is the new Tesla,” declared the Financial Times, referring to the now dominant Californian e-car group founded by billionaire maverick entrepreneur Musk in 2003.

“Our transformation will be fast, unprecedented and on a scale not seen in the automobile industry in a century,” Diess said at VW’s inaugural “Power Day” last Monday, where he fired off a flurry of announcements.

READ ALSO: Volkswagen to spend 60 billion to transition to electric cars

Industry watchers say it’s a credible bet. Bloomberg Intelligence auto analyst Tatsuo Yoshida said Volkswagen “has (the) potential to overtake Tesla’s number one position… in a few years”.

Karl Brauer, an analyst with CarExpert.com, said VW’s “combination of financial resources and manufacturing capacity make it a prime challenger for Tesla’s dominance” — even if catching up with its US rival is “not going to be easy”.

‘Saving face’

Diess, who has headed the 12-brand VW group since 2018, has never hidden his admiration for Musk, whose brash and unconventional ways have a habit of disrupting markets.

The two men have a friendly relationship and regularly exchange emails, according to an insider.

If the aim of Diess’s carefully choreographed “Power Day” was to capture some of the enthusiasm of a Battery Day Tesla held late last year, particularly in the United States, it appears to have worked.
Diess’s announcements saw US investors flock into Volkswagen shares, including many small traders using online platforms.

In just a week, the Wolfsburg-based car giant gained 15 percent on Frankfurt’s blue-chip stock exchange, giving the group a market capitalisation of more than 130 billion.

The rise puts Diess’s 200-billion-euro target within reach but he has a way to go before matching Tesla’s $619 billion valuation.

VW’s “forced transition” towards more environmentally friendly cars has now been “recognised by the market”, said Eric Kirstetter, an auto sector expert at the Roland Berger consulting firm.

VW ironically owes its change of course to the dieselgate scandal, which forced the group into “a face-saving dive into an all-in electro-mobility strategy”, said Germany-based industry analyst Matthias Schmidt.

The Volkswagen E-Golf in production in Saxony in March 2018. Photo: DPA

Industry watchers note especially its decision to focus on developing a single platform for all its brands which could well be the game changer for the German giant.

The platform was used for the first time on the ID.3 model which launched late last year. UBS analyst Patrick Hummel called it “the most significant bet on electric vehicles made by any legacy carmaker to date” as VW’s competitors are using mostly mixed platforms and a combination of technologies.

READ ALSO: Volkswagen to slash up to 5,000 jobs to fund electric vehicle drive

Not Apple but Samsung

VW’s move is aimed at achieving economies of scale for its 12 brands.

“Tesla is learning what is takes to move into high volume, whereas companies like Volkswagen already have volumes and it’s just a matter of switching volumes from one platform to another which they have done routinely in the past,” said Subodh Mhaisalkar, executive director of the Energy Research Institute at Singapore’s Nanyang Technological University.

But VW’s size also comes with its own disadvantages — consensus has to be found for each major decision not only with the powerful head of the workers’ committee but also with managements of the group’s various brands.

Beyond the core electric technology, Volkswagen is also playing catch up with Tesla on the just as important software.

Ben Kallo, an analyst at US investment bank Baird, believes Tesla will remain the market leader on electric cars because of its advances in battery cell production and autonomous driving.

“VW might not be the Apple but the Samsung of the electric vehicles world,”UBS said in a report.

On Twitter, Diess is still 49 million followers short of Musk.

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