DBRS Upgrades Ratings of BMW AG to A (high) from “A,” Trend Now Stable

DBRS Limited (DBRS) has today upgraded the long-term ratings of BMW AG (BMW or the Company) and its subsidiary BMW Canada Inc. (based on the guarantee of BMW) to A (high) from “A.” The trend on the ratings has been changed to Stable from Positive. DBRS had previously indicated that BMW’s ratings would likely be subject to an upgrade pending additional visibility regarding any possible adverse effects to the Company resulting from industry headwinds associated with the ongoing diesel vehicle emissions issue (the Diesel Issue) emanating primarily from Europe. Additionally, DBRS stated that it would monitor BMW’s sales performance in emerging markets, notably China (BMW’s largest single market in terms of sales volumes), where its growth had moderated sharply following substantial increases earlier this decade. DBRS is currently of the opinion that the Company’s exposure to the Diesel Issue in terms of potential lost sales appears readily manageable. Moreover, BMW’s performance in emerging markets in 2016 through early 2017 has rebounded considerably. Accordingly, the Company’s 2016 sales in each of the Automotive and Motorcycles segments attained record levels for the sixth consecutive year, with the EBIT margin of both segments also being well within BMW’s target range of 8% to 10%. Finally, taking into account the Company’s conservative financial policy amid its ongoing solid revenue and earnings performance, credit metrics persist at levels slightly exceeding the A (high) ratings.

While the Diesel Issue has served to accelerate the structural decline in diesel vehicle sales in Europe (by far the largest diesel automotive market), DBRS observes that the decrease has remained moderate and most pronounced in the compact car segments. In contrast, sales of larger-displacement diesel vehicles (where BMW substantially participates) have remained resilient, as these vehicles continue to present significant advantages in cost-of-ownership terms vis-à-vis similar internal combustion engine (ICE) equipped models, with diesel vehicles remaining a significant component in meeting the regional carbon dioxide-based emissions regulations. Additionally, DBRS notes further that BMW is in any event well prepared to withstand the anticipated ongoing migration away from diesel vehicles, with the Company being well positioned across various powertrain technologies, including ICEs as well as hybrid and electric powertrains (the latter featuring prominently in the Company’s “i” sub-brand). BMW’s current vehicles already incorporate high levels of commonality across powertrains; moreover, BMW’s future iNext model is to feature a vehicle architecture that can accommodate each of the three aforementioned powertrain types, depending on demand.

Regarding emerging markets, notably China, while the Company’s 2015 annual sales growth declined to a mere 2% year over year, BMW’s annual volumes in 2016 and in the first four months of 2017 have notably improved, increasing by 11.2% and 18.2%, respectively, over the similar prior-year periods.

Despite ongoing and sizable planned investments to be allotted to alternative powertrain development and capacity increases, among other areas, the Company’s operating performance and financial results are estimated to remain solid amid continued projected industry growth worldwide, with the premium segment in particular anticipated by BMW to grow from the 2016 level of 8.2 million units globally to a level of 9.5 million units by 2021. DBRS notes additionally that the Company also stands to benefit from its increasing presence in the SUV segment and scheduled capacity increase in China, as both are expected to grow disproportionately relative to the overall automotive industry going forward. This notwithstanding, DBRS sees limited potential for additional positive rating actions over the foreseeable future given the high level of the current ratings compared with the industry average, with DBRS also taking into account BMW’s relatively modest scale vis-à-vis the world’s largest auto manufacturers. Conversely, a significant industry downturn or marked shift in BMW’s financial policy could potentially pressure the ratings.

Notes:
The Senior Unsecured Debt Rating of BMW Canada Inc. is based on the guarantee of BMW AG.

All figures are in euros unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The principal methodologies are Rating Companies in the Automotive Manufacturing Industry, Global Methodology for Rating Finance Companies and DBRS Criteria: Guarantees and Other Forms of Support, which can be found on dbrs.com under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.