DBRS Confirms BMW AG at A (high), Stable Trend

DBRS Limited (DBRS) confirmed the Issuer Rating of BMW AG (BMW or the Company) and the Senior Unsecured Debt rating of its subsidiary, BMW Canada Inc. (based on BMW’s guarantee), at A (high). The trend on the ratings is Stable. The confirmation reflects the Company’s solid business risk assessment as a global original equipment manufacturer (OEM) of premium automotive vehicles. DBRS notes that BMW’s financial risk assessment (FRA) is also strong as a result of its conservative financial policy amid ongoing solid revenue and earnings performance with credit metrics that are strong for the current rating category.

The Company’s earnings momentum continued in 2017 and H1 2018 despite slowing revenue growth and increasing costs, largely attributable to growing investments in vehicle electrification and autonomous driving. Revenues and profit in 2017 reached record levels for the seventh consecutive year and performance remains solid in H1 2018 with both the Automotive and Motorcycles segments maintaining their earnings before interest and taxes margin well within their target range of 8% to 10%.

While the industry-wide diesel vehicle emissions issue accelerated the structural decline of diesel vehicle sales, DBRS notes that the associated drop in BMW’s diesel sales, which contributes significantly to larger vehicle segment sales, has proven manageable. Moreover, the Company is well positioned for the ongoing migration toward alternative powertrains as it has adopted flexible architectures across its vehicle platforms to accommodate either traditional internal combustion engines, plug-in hybrids or pure electric vehicles. The Company estimates that it will reach 500,000 in cumulative electrified vehicle sales by YE2019.

As with all OEMs, BMW is facing trade/tariff headwinds. The Company’s Q2 2018 sales growth in China was adversely affected by lower vehicle import tariffs effective July 1, 2018, which prompted certain consumers to defer vehicle purchases in anticipation of potentially lower prices. China then imposed additional duties on vehicles imported from the United States, which also affect BMW as it exports sport-utility vehicle (SUV) models produced in its Spartanburg, South Carolina, plant to China. However, BMW has options to mitigate the effects of higher tariffs, including absorbing the majority of resulting cost increases (although certain models have been subject to price increases) as well as increasing supply from other jurisdictions, notably Thailand. Moreover, the new X3 SUV will be produced locally in China, which should bolster the Company’s regional performance. As such, trade challenges have not caused BMW to deviate from its previously announced outlook or margin targets thus far.

DBRS expects BMW’s ratings to remain constant, noting that the Company’s relatively modest scale compared with the world’s largest OEMs somewhat limits additional positive rating actions. Conversely, a meaningful erosion in BMW’s FRA resulting from lower earnings amid materially higher costs and investments could potentially pressure the ratings, although DBRS deems this scenario to be rather unlikely.

Notes:
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 under Related Research below or by contacting us at info@dbrs.com.

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

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

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

BMW Canada Inc.’s rating is based on a Guarantee from BMW AG.

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