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Siemens is a 174-year-old industrial giant that, once upon a time, made dishwashers, and maybe thats the image the brand still summons.

But its new chief executive has a plan to turn the German group into a focused technology company a blue-chip European stock that investors can buy to play growth in the likes of electric vehicles, lithium-ion batteries, hydrogen power, 5G, cybersecurity, and cloud computing.

In the first capital markets day under Roland Buschs leadership, Siemens SIE, +1.24% announced that next year it will change the business model of its fastest growing and most profitable division, digital industries, to focus on software that is sold on a recurring, subscription basis.

The move toward software-as-a-service will be accompanied by a new financial reporting metric that will describe annual recurring revenue giving investors and analysts new insights into the profitability of the software business.

A change like that has the possibility to cause a massive rerating in the price of Siemens stock by 20% to 25%, according to analyst Philip Buller of investment bank Berenberg. Until now, the software division has been buried within the industrial company, obscuring the higher valuation that software groups typically fetch compared with industrial stocks.

Its a big shift, but change isnt new to Siemens. The group built Europes first long-distance telegraph line in 1848, just a year after it was founded in a back courtyard in Berlin. By 1900, it had laid more than half of the undersea cables crossing the Atlantic Ocean.

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In the next 100 years it grew into a sprawling conglomerate, variously touching everything from household appliances to power generation, telecommunications to trains, and health technology to heavy industry.

Ahead of the capital markets day, Busch told MarketWatch how the industrial giant is pushing toward a new era of growth and acquisitions centered on connecting core technologies such as automation, 5G, and cloud computing across its disparate divisions.

Under the leadership of Buschs predecessor, Joe Kaeser, Siemens began the process of transitioning from an aging industrial behemoth to a focused technology company, which included spinning off renewable energy group Siemens Energy in 2020.

For Busch, the challenge is now to build synergies across the business divisions that remain, which cover industry, infrastructure, mobility, and health technology synergies that analysts say dont quite exist yet.

Technology is the backbone of our company, Busch said. Is 5G the future? Is it automation technology? Is it cybersecurity? Is it digital twins? All of that is playing into all of our businesses.

The crown jewel in the groups portfolio is the factory business it calls digital industries. The division builds high-tech factories for the future, supplying automated manufacturing systems and, increasingly, industrial software. It is building next-generation capabilities for automotive brand Mercedes-Benz DAI, -1.37% and scaling up COVID-19 vaccine production for biotech BioNTech BNTX, -0.33%.

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We are a company with a very strong software portfolio, but we are not a software company, he told MarketWatch. Unlike any other company in the world, we are able to combine the real and the digital worlds.

Busch is focused especially on automation, driven by advances in 5G applications in the industrial space. This is where most of the groups capital allocation will be, he said. A key technological emphasis is on edge computing bringing the processing power available in cloud servers, including artificial intelligence, down to the shop floor.

Cybersecurity is another priority in an age where factories and power grids are targeted by hackers, Busch, said, and Siemens is developing an unhackable one-way communication chip.

The end market where Busch sees the most opportunity is the automotive sector, where Siemens already has deep roots. Central to that is the explosion of electric vehicles, which are expected to penetrate 100% of the automobile market by 2040, according to analysts at Swiss bank UBS UBS, -0.13%.

Having the next transformation ahead of us from combustion engines to electric cars that requires investments, Busch told MarketWatch, describing the wave of capital expenditure coming in the automotive sector. We are not delivering the car, we are delivering the manufacturing.

Adjacent to that boom is accelerating demand for the lithium-ion batteries that power electric vehicles. UBS predicts that the required battery-cell supply to meet the increased demand for EVs will result in regional tightness this year and global shortages by 2025.

Also read: Buy these 3 battery stocks to play the electric-vehicle party, but stay away from this company, says UBS

And Siemens has tied itself into battery production. The German company counts among its partners Northvolt, the Swedish battery manufacturer founded by former Tesla TSLA, -1.31% executives and backed by the likes of Goldman Sachs GS, +0.04%, car maker Volkswagen VOW, -0.98%, and Daniel Ek, the chief executive of music-streaming service Spotify SPOT, +0.23%. It has other battery partners in the U.K. and China.

Pharmaceuticals, food, and semiconductor industry software are other sectors ripe for market-share growth, Busch added. The CEO especially noted the opportunities for Siemens to use blockchain, the decentralized ledger technology that underpins crypto assets such as bitcoin, ethereum, and dogecoin, to monitor the integrity of food supply chains.

For its infrastructure business, the focus for the future is on electrification, and installing integrated solar-energy systems in complex networks like those in hospitals and data centers, Busch said.

The company will also hold on to its train and rail network business, Busch confirmed to MarketWatch, after the division was the subject of a failed merger with Frances Alstom ALO, +0.75%, blocked by regulators in 2019.

Mobility will be a key part of Siemens, which is looking into hydrogen power as a new type of train propulsion. There is huge potential in replacing thousands of diesel locomotives with green power, Busch said.

Not bad for a company famous for dishwashers.

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Why an industrial giant known for dishwashers sees its future in electric vehicles, hydrogen, 5G and the cloud - MarketWatch