DBRS Confirms Nissan Motor Co., Ltd. at A (low), Changes Trend to Positive from Stable

DBRS Limited (DBRS) confirmed the long-term ratings of Nissan Motor Co., Ltd. (Nissan or the Company) at A (low). Concurrently, DBRS also confirmed the long-term and Commercial Paper ratings of Nissan Canada Financial Services Inc. at A (low) and R-1 (low), respectively. The confirmations recognize the Company’s solid business risk assessment as a major automotive original equipment manufacturer (OEM) whose competitive position is strengthened by the Renault-Nissan-Mitsubishi Alliance (the Alliance). The trend on the long-term ratings has been changed to Positive from Stable, in recognition of the Company’s stronger financial profile in line with higher earnings over the past couple of years that are significantly a function of sales growth in the Chinese and North American markets. The improved earnings performance, amid Nissan’s ongoing conservative financial policy, has caused its credit metrics and financial risk assessment (FRA) to be above levels commensurate with the current ratings.

The Company’s higher profitability in recent years reflects sales volume growth (primarily attributable to China and North America) and firmer product mix, with Nissan’s recent product introductions being well received globally and the Company benefitting from consumers’ growing preference for light truck models (including CUVs/SUVs) relative to cars. Moreover, DBRS notes that Nissan’s fiscal 2016 (F2016, ending March 31, 2017) earnings would have increased considerably year over year (YOY) absent sizable negative foreign exchange (FX) impacts (primarily as a result of the strengthening of the Japanese yen relative to the U.S. dollar) that exceeded USD 2.5 billion (equivalent). While DBRS acknowledges that the Company has incurred meaningfully higher marketing and selling expenses to help achieve its recent growth these are expected to moderate going forward and have been more than offset by increasing efficiencies (i.e., purchasing and raw material cost reductions).

DBRS also expects Nissan to continue deriving meaningful gains from the Alliance, which has been further strengthened by the Company’s acquisition of a 34% stake in Mitsubishi Motors Corporation (Mitsubishi). With the addition of Mitsubishi, combined sales volume of the Alliance in 2016 totalled close to 10 million units, comparable to the world’s leading automotive OEMs. Accordingly, the expanded Alliance is expected to result in additional efficiency gains and enhanced procurement capabilities, with derived synergies subject to ongoing increases and targeted at EUR 5.5 billion by 2018 (combined annual level). Moreover, the Alliance recently unveiled a six-year business plan (Alliance 22) that projects annual synergies to total EUR 10.0 billion by the end of the plan in 2022; additional objectives include the extension of common platforms and powertrains as well as the development of several new electric vehicle (EV) models. In line with tightening emission standards worldwide and increasing headwinds facing internal combustion engines, particularly diesels, DBRS notes that the Alliance (already the global leader in EVs) stands to benefit considerably should the penetration rate of EVs (which currently only represent roughly 1% of annual industry volumes) increase to even moderate levels.

DBRS acknowledges that the Company faces headwinds in some of its markets, notably North America where (after an extended period of meaningful consecutive annual increases) sales growth is projected to moderate with the key U.S. market trending toward a slight YOY decline. While a contraction in global volumes exacerbated by sizably negative FX developments would adversely affect earnings and cash flow generation, DBRS notes that Nissan’s current FRA provides the Company with considerable cushion against such challenges before pressuring the ratings. Conversely, DBRS recognizes Nissan’s stronger FRA and, assuming the Company’s operating performance remains essentially on track, anticipates upgrading the ratings within the next year.

Notes:
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 methodology is Rating Companies in the Automotive Manufacturing Industry, which can be found on dbrs.com under Methodologies.

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

The rated entity or its related entities did participate in the rating process. DBRS did have access to the accounts and other relevant internal documents of the rated entity or its related entities.

This rating was initiated at the request of the rated entity.

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