
GE 'badly' misjudged the clean energy transition, costing investors almost $193B - toomuchtodo
https://www.utilitydive.com/news/ge-badly-misjudged-the-clean-energy-transition-costing-investors-almost/556420/
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hangonhn
That's quite a stretch to blame everything on GE's Power division. I've been
following GE for a while and the problems at GE go back many years. At the
heart of the problem isn't its Power division (which is bleeding money) but
GE's Capital division, which has a lot of liabilities still from the 2008
recession, its opaque finances, and its massive pension liabilities. The
Alstrom acquisition (cost GE $10B) and being late to the wind turbine game
can't explain $193B loss in market cap. It was basically really badly managed
by Immelt for a decade. GE used tens of billions to do stock buybacks rather
than pay down its liabilities.

The clean energy transition is just one of many problems for GE and isn't even
its most urgent. Companies like GE make bad decisions like that all the time
but it takes a series of bad steps and mismanagement to push a conglomerate
like GE to the brink.

That said, I still think GE has a lot of very valuable assets that generate a
lot of cash flow and things are starting to turn around. The massive amount of
cash it got from offloading its biopharma division will give it a bit more
runway so it doesn't have to sell its best assets (aviation, healthcare, etc.)
to finances its bad debts.

Edit: Full disclosure -- the reason I know about GE's issues is because I've a
long position on GE. So please read my comment with the view that I'm biased.
Otherwise, I wouldn't be going long on GE.

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Scoundreller
> GE used tens of billions to do stock buybacks rather than pay down its
> liabilities.

Is this such a bad plan if equity funding is expensive but debt funding is
cheap?

If you can secure a loan against your assets at 3% and buy back preferred or
common shares paying 5%, then it can make sense. It’s one way to avoid a
dividend cut while decreasing dividend expenses. You can always issue the
shares again later.

~~~
hangonhn
At a high level, I don't disagree with the idea as a whole but the problem
with a plan like that is when you're facing a liquidity shortage, your shares
may not be worth a lot. The problem with leveraging debt is that it can also
compound and magnify your problems. Especially in the case of GE, the huge
debt caused its debt rating to go down and that made the cost of borrowing
higher, thus compounding the problem. If GE had paid down its debts, its book
value would have gone up and eventually that would drive up its share prices
(eventually... in a rational market).

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nemothekid
> _E is "a case study in how rapidly and unexpectedly the global energy
> transition away from fossil fuels travels up the economic chain and destroys
> value in the power generation sector," the report says. It points the finger
> at large shareholders, like Vanguard, BlackRock, State Street and Fidelity,
> who IEEFA analysts say should be doing more to push companies away from
> fossil fuels._

This is interesting way to phrase things? It's the fault of the index/hedge
funds, who likely did not have any say, for the reason that the executives
running GE weren't forward looking enough?

~~~
ralph84
It's absolutely not the role of index funds to dictate strategy to the
companies they own. The whole premise behind an index fund is investors don't
know which strategy is best, so just buy everything.

Where funds could have an impact is tying more of management compensation to
long-term results. Longer vesting schedules on stock compensation would be an
easy place to start.

~~~
basch
Theres an observer effect type thing going on either way. If they invest in
certain behaviors, companies will start behaving that way to get investments.

At the end of the day, the investors have agendas (the large stakeholders
agenda is generally global stability aka lack of disruptive change) and they
invest in ways to achieve said goal. GE fit that model AND their collapse is a
great illustration of why attempts at safe passive investing eventually lead
to stagnant and obsolete investments.

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tim333
A lot of people seem to have misjudged the clean energy transition. Here are
the International Energy Agency 'World Energy Outlook' projections and reality
[https://twitter.com/AukeHoekstra/status/866313289306963969/p...](https://twitter.com/AukeHoekstra/status/866313289306963969/photo/1)

It kind of fits with what Kurzweil bangs on about, about people thinking
linearly and misjudging exponential growth. I hope this exponential continues
as it would be a major plus for combating climate change. Here he is in 2011
saying solar will power the world around 2027. Which sounds a little
optimistic. We shall see. [https://bigthink.com/think-tank/ray-kurzweil-solar-
will-powe...](https://bigthink.com/think-tank/ray-kurzweil-solar-will-power-
the-world-in-16-years)

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SanchoPanda
[http://ieefa.org/wp-content/uploads/2019/06/General-
Electric...](http://ieefa.org/wp-content/uploads/2019/06/General-Electric-
Misread-the-Energy-Transition_June-2019.pdf)

Here is a link to the actual report.

This reads like they started with the conclusion, and then kept googlig for
facts to support it. Importantly, no where does it connect the energy
transition to the number 193 billion. They say a thing happened in 2016 (an
acquisition), in 2018 another thing was much worse (GE's mkt cap), so
_obviously_ that 2016 thing caused the 2018 thing.

Dissapointing givien the high caliber of donorsto the IEEFA.

~~~
AdamM12
Yeah kinda reads of green energy propaganda imo. Not opposed to renewables at
all (own PEGI).

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woodandsteel
>GE is "a case study in how rapidly and unexpectedly the global energy
transition away from fossil fuels travels up the economic chain and destroys
value in the power generation sector," the report says. It points the finger
at large shareholders, like Vanguard, BlackRock, State Street and Fidelity,
who IEEFA analysts say should be doing more to push companies away from fossil
fuels.

Big finance is finally waking up to the fossil fuels transition
[https://www.nytimes.com/2019/06/11/climate/climate-
financial...](https://www.nytimes.com/2019/06/11/climate/climate-financial-
market-
risk.html?action=click&module=Well&pgtype=Homepage&section=Climate%20and%20Environment)

