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

DBRS Limited (DBRS) confirmed the Issuer Rating of BMW AG (BMW or the Company) as well as the Senior Unsecured Debt rating of its subsidiary, BMW Canada Inc., at A (high) with Stable trends. The confirmations reflect the Company’s solid business risk assessment as a leading global original equipment manufacturer (OEM) of premium vehicles. Notwithstanding somewhat lower recent earnings, BMW’s financial risk assessment (FRA) also remains strong, given its conservative financial policy amid ongoing solid cash flow generation with credit metrics persisting at levels slightly above the ratings.

BMW’s core earnings performance in 2018 and Q1 2019 declined (albeit from very high levels) in line with weaker pricing, increased commodity prices and higher research and development expenses. Acknowledging that such cost headwinds will persist, the Company in March 2019 announced cost saving and efficiency measures, with potential efficiencies of more than EUR 12 billion targeted by year end 2022. Additionally, BMW lowered the outlook for its core Automotive segment, which is now forecast to attain an EBIT margin of 6% to 8% in 2019 – below the strategic target range of 8% to 10%. DBRS notes, however, that substantially all of the Company’s peers face similar challenges associated with emerging automotive technologies and new mobility business initiatives as OEMs look toward joint ventures (JVs) and partnerships to alleviate the resulting cost burden. In February 2019, BMW announced five JVs with Daimler AG (rated “A” with a Stable trend by DBRS) in mobility services.

Despite these cost headwinds amid slowing global sales growth, DBRS notes that BMW’s operating performance is expected to remain sound as automotive conditions continue to be reasonable. Moreover, the premium vehicle segment in which BMW participates is estimated to outperform the industry as the Company’s sales in China continue to increase, despite a contraction in the regional market, and volumes in the United States and Europe remain solid. Finally, earnings are projected to improve after H1 2019 to be in line with the Company’s concerted product offensive.

BMW remains well positioned regarding the ongoing migration toward alternative powertrains as it has adopted flexible vehicle architectures that can accommodate either traditional internal combustion engines, plug-in-hybrids or pure electric vehicles (subject to market demand). In addition, BMW recently announced plans to accelerate its electrified vehicle offerings and to make 25 electrified models available by 2023, which is two years earlier than previously targeted. As such, while tightening emission regulations (notably in Europe) represent a drag on future earnings, DBRS considers this to be manageable.

DBRS expects the Company’s ratings to remain constant over the near term. While credit metrics may soften slightly as a result of lower earnings as well as higher costs and investments, DBRS notes that BMW’s FRA affords some cushion at the current rating level. Conversely, DBRS considers a rating upgrade to be unlikely in the context of the current cost headwinds facing the industry.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies are Rating Companies in the Automotive Manufacturing and Supplier Industries (October 2018) and DBRS Criteria: Guarantees and Other Forms of Support (January 2019), which can be found on dbrs.com under Methodologies & Criteria.

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 Documents or by contacting us at info@dbrs.com.

The rating was not initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS did not have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This rating is endorsed by DBRS Ratings Limited for use in the European Union. The following additional regulatory disclosures apply to endorsed ratings:

Each of the principal methodologies employed in the analysis addressed one or more particular risks or aspects of the rating and were factored into the rating decision. Specifically, DBRS used “Rating Companies in the Automotive Manufacturing and Supplier Industries” as the primary rating methodology in determining the rating of the parent company, BMW AG. Subsequently, “DBRS Criteria: Guarantees and other Forms of Support” was applied in determining the rating of BMW Canada Inc., which benefits from a guarantee from BMW AG. The guarantee, in combination with DBRS’s assessment of additional implicit support considerations, including (but not limited to) business, reputational and financial factors that are deemed likely to motivate a parent or affiliated company to support its subsidiary issuer, result in a flow-through of BMW AG’s rating to BMW Canada Inc.

The last rating action on this transaction took place on August 20, 2018, when DBRS confirmed the ratings on BMW AG and BMW Canada Inc. at A (high) with Stable trends.

Solely with respect to ESMA regulations in the European Union, this is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer.

This rating included participation by the rated entity or any related third party. DBRS had no access to relevant internal documents for the rated entity or a related third party.

For further information on DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Lead Analyst: Robert Streda, Senior Vice President, Autos
Rating Committee Chair: Charles Halam-Andres, Managing Director, Industrials & Natural Resources
Initial Rating Date: August 17, 2006

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.
 
For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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