Morningstar DBRS Places Nissan Motor Co., Ltd.'s Credit Ratings Under Review With Negative Implications

DBRS Limited (Morningstar DBRS) placed Nissan Motor Co., Ltd.'s (Nissan or the Company) Issuer Rating and Senior Unsecured Debt credit rating of BBB (low) as well as its subsidiary, Nissan Canada Inc.'s, Senior Unsecured Debt credit rating of BBB (low) Under Review with Negative Implications (UR-Neg.). This credit rating action follows the Company's weak Q3 F2024 (ending December 31, 2024) results that were below Morningstar DBRS' expectations and reflects ongoing uncertainty regarding the Company's strategic direction in the future.

Morningstar DBRS notes that, on December 23, 2024, Nissan and Honda Motor Co., Ltd. (Honda; rated A (high) with a Stable trend) announced their entry into a Memorandum of Understanding to begin discussions and consideration of a business integration. On February 13, 2025, Nissan and Honda announced that they had agreed to terminate the memorandum. Nevertheless, there is speculation that Nissan and Honda could, if certain conditions are met, resume discussions about a business integration. In the interim, there is additional speculation that Nissan is likely also considering strategic ties with other potential partners, which may include Taiwanese electronics manufacturer, Hon Hai Precision Industry Co., Ltd. Amid these ongoing developments, the future of the Renault-Nissan-Mitsubishi Alliance remains highly unpredictable.

Nissan's operating performance continues to decline as its operating margins for the first three quarters of F2024 softened to 0.7%. Weak earnings reflect unfavourable sales volumes and product mix in addition to weaker pricing and ongoing cost headwinds. Because of its lacklustre results, Nissan revised its full-year F2024 forecast for the third consecutive quarter and now projects consolidated net revenue of JPY 12.5 trillion (USD 82.2 billion equivalent) and operating profit of JPY 120 billion (USD 800 million equivalent), representing an operating margin of roughly 1%. Nissan concurrently announced planned restructuring activities, including a target reduction of global production capacity by 20% to four million units from five million units by F2026. The Company also outlined sizable associated planned headcount reductions.

The UR-Neg. will focus on Nissan's F2024 full year results, and particularly the Company's guidance for the next fiscal year. Absent better visibility regarding a turnaround in operating performance over the rating horizon, pressure on the credit ratings remains high, with a downgrade likely resulting. We will continue to monitor the evolution of new strategic partnerships; however, until a firm agreement is reached, we will continue to assess Nissan's credit quality on a stand-alone basis.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
Environmental (E) Factors
Morningstar DBRS considers that the carbon and greenhouse gas (GHG) emissions factor represents a relevant factor as the rapid spread of electric vehicles (EVs) and stricter regulations on GHG emissions around the world require an initiative aiming for carbon neutrality across the whole lifecycle of cars. Delays in Nissan's responses to these environmental requirements could affect its financial position and business performance. In 2023, Nissan announced the fifth generation of its National Green Program, NGP2030. Nissan is targeting to achieve carbon neutrality across its operations and the lifecycle of its products by 2050. As part of this effort, the Company is increasing investments in accelerating the electrification of its product portfolio. By F2030 (ending March 31, 2031), Nissan is aiming to introduce a total of 34 EV models covering all vehicle segments while increasing its model mix of EVs to more than 60% globally. Nissan's electrification efforts entail substantial investments. Over the near term, the Company is planning to invest JPY 2 trillion (USD 12.4 billion equivalent) in electrification by 2026. For further details, please refer to the "The Future is Electric: Climate Change and the Global Automotive Sector" commentary at https://dbrs.morningstar.com/research/413419.

There were no Social or Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in Japanese yen unless otherwise noted.

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Companies in Manufacturing and Production Industries (February 3, 2025)
https://dbrs.morningstar.com/research/447185

Morningstar DBRS credit ratings may use of one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025; https://dbrs.morningstar.com/research/447186) which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodologies have also been applied:
-- Morningstar DBRS Criteria: Approach to ESG Factors in Credit Ratings (August 13, 2024)
https://dbrs.morningstar.com/research/437781
-- Morningstar DBRS Global Corporate Criteria (February 3, 2025) https://dbrs.morningstar.com/research/447186

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

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@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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