Morningstar DBRS Confirms Credit Ratings on Magna International Inc. at A (low), Stable

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and Senior Debt rating of Magna International Inc. (Magna or the Company) at A (low) as well as its Short-Term Debt rating at R-1 (low). All trends remain Stable.

KEY CREDIT RATING CONSIDERATIONS
The credit rating confirmations reflect Magna's favourable comprehensive business risk assessment (CBRA) as a global leading Tier 1 automotive supplier with high-level and diverse technological capabilities that notably include complete vehicle assembly, thereby placing the Company in an excellent position to win business from new automotive entrants. Morningstar DBRS also notes that Magna's comprehensive financial risk assessment (CFRA) remains solid and fully commensurate with the existing ratings, notwithstanding the Company's somewhat higher leverage (vis-à-vis historical norms), primarily reflecting Magna's acquisition of the Veoneer Active Safety business (Veoneer) in 2023. Moreover, Morningstar DBRS notes that Magna remains committed to its historically conservative financial policy, with the Company aiming to revert to its targeted leverage range within 2026.

CREDIT RATING DRIVERS
Consistent with the Stable trend, Morningstar DBRS expects the Company's credit ratings to remain constant over the near term. While the Company's investment cycle has peaked, ongoing costs and investment requirements (associated with the progressive electrification of the automotive industry and continued advances in active vehicle safety) remain sizable. This high spending level, amid Magna's increased leverage (albeit while remaining wholly consistent with the current credit ratings), renders positive credit rating actions unlikely over the near term. Conversely, significantly weaker earnings amid these high investments - resulting in sizable negative free cash flow generation and thereby adversely affecting credit metrics - could have negative credit rating implications, although this is mitigated by the Company's favourable financial profile and conservative financial policy. Finally, in the event that Magna were to assume a markedly more aggressive financial policy, thereby resulting in a meaningful and sustained increase in leverage, this could also result in negative rating actions.

EARNINGS OUTLOOK
For 2025, Morningstar DBRS expects Magna's earnings to moderately soften year over year (YOY). The Company's sales are estimated to decline YOY in line with lower anticipated (aggregate industry) vehicle production volumes, partly offset by favourable foreign exchange effects. Earnings are projected to slightly decrease YOY as a function of moderating margins consistent with reduced production volumes, with higher labour and material costs representing additional headwinds to earnings. In aggregate, Morningstar DBRS projects Magna's 2025 EBIT to range from $1.8 billion to $2.0 billion. Going forward, Morningstar DBRS expects Magna to remain substantially profitable over medium term, although earnings growth may be impeded by sluggish vehicle production volumes given uncertain demand levels, reflecting changing global tariff policies and increased geopolitical risk. Morningstar DBRS acknowledges that ongoing operational efficiencies and anticipated launches of new (typically higher margin) production programs represent partial offsets to the above-cited earnings headwinds.

Morningstar DBRS notes that the Trump administration's trade policies that have increased tariffs globally stand to significantly affect automotive original equipment manufacturers (OEMs). However, Magna has indicated that, for the vast majority of its sales in Canada and Mexico, OEM customers are the importer of record, with the Company's direct tariff exposure accordingly being very low. The Company added further that while it purchases/imports approximately $2 billion in goods (from lower-tier suppliers) that are subject to tariffs, most of this amount is USMCA compliant, with the resulting tariff exposure estimated at approximately $250 million. Magna has added further that it expects to ostensibly fully recover this amount from its OEM customer base. In line with the above, Morningstar DBRS notes that Magna's direct exposure to the developing tariffs is significantly contained, although the Company would nonetheless be affected by decreased production volumes that could result from lower demand levels due to increased consumer uncertainty given the escalating tariffs.

FINANCIAL OUTLOOK
Morningstar DBRS anticipates Magna's cash flow from operations in 2025 to remain solid, albeit moderately decreasing YOY in line with the softer estimated earnings. The Company projects capital expenditures (capex) to decline YOY and range from $1.7 billion to $1.8 billion, with Magna's current investment cycle having peaked. Dividends are anticipated to remain relatively constant in 2025, with payments over the medium term expected to reflect Magna's earnings performance. Notwithstanding the ongoing sizable capex and consistent dividends, Morningstar DBRS projects the Company's free cash flow in 2025 to be positive, with this persisting over the medium term in line with ongoing firm earnings generation.

Morningstar DBRS acknowledges that the Company's current leverage is somewhat higher relative to historical norms; this is substantially a function of the Veoneer acquisition in 2023. While Magna has delayed in reverting to its targeted leverage ratio (outlined by the Company as adjusted debt-to-adjusted EBITDA being in the range of 1.0 times (x) to 1.5x), this is explained by high capex and investments, delays in the ramp up of certain production programs (notably in electric vehicles (EVs)) and unfavourable seasonality/timing effects. Morningstar DBRS expects Magna to revert to its targeted leverage (likely within the 2026¿27 timeframe). Despite this, Morningstar DBRS notes that, at current leverage levels, the Company's CFRA remains fully commensurate with the existing credit ratings.

CREDIT RATING RATIONALE
Comprehensive Business Risk Assessment (CBRA): AL/BBBH
Magna's CBRA reflects its position as a major global Tier 1 automotive supplier with a diverse range of product capabilities, including the ability to assemble complete vehicles. Magna's high technology level provides it with firm pricing power in the face of OEM customers. While Magna's customer base is well diversified, six OEMs represent the significant majority of sales, although Morningstar DBRS notes that these OEMs substantially have an extended global presence while also being highly exposed to the premium automotive segment (that typically commands firmer pricing while also being more resilient to cyclical downturns). The Company is also highly geographically diversified, with operations in 28 countries. Morningstar DBRS also notes that Magna has attained meaningful growth in China, including sales increases to local new energy vehicle manufacturers. Regarding future automotive trends, the Company is well-positioned with the significant majority of its product portfolio being either powertrain agnostic (i.e., ICE vehicles versus EVs) or standing to benefit from the progressive electrification of the industry. Finally, Magna's high technical capabilities, combined with its financial strength, place it in an excellent position to win business as OEMs consolidate the supply base and move toward more global production platforms.

Comprehensive Financial Risk Assessment (CFRA): AL
Magna's financial policy is quite conservative, with the Company seeking to maintain a strong balance sheet and high investment-grade ratings. Magna has a targeted leverage ratio, outlined by the Company as adjusted debt-to-adjusted EBITDA being in the range of 1.0x to 1.5x. Morningstar DBRS acknowledges that Magna's current leverage is higher than its stated target, although this is explained by debt incurred in conjunction with its Veoneer acquisition in 2023. Morningstar DBRS notes that the Company remains committed to reverting to its leverage target. Notwithstanding Magna's current higher debt levels, Morningstar DBRS notes that the Company's current leverage and financial profile remain fully commensurate with the existing credit ratings. Additionally, Magna's liquidity remains strong, with cash and available credit lines amounting to $4.6 billion as of March 31, 2025.

Intrinsic Assessment (IA): AL
The IA is based on the CFRA and CBRA. Taking into consideration peer comparisons among other factors, Morningstar DBRS places Magna's IA in the middle of the IA range.

Additional Considerations: None
Magna's credit ratings include no further negative or positive adjustments because of additional considerations.

Further details on the Issuer's Intrinsic Assessment can be found at https://dbrs.morningstar.com/research/456960.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
ESG Considerations had a relevant effect on the credit analysis.

Social (S) Factors
Morningstar DBRS considered that the Social factor related to product governance represents a relevant factor as Magna's portfolio of products and services, taking into further consideration the Company's customer base, essentially consisting of major global automotive OEMs, is subject to warranty, product liability, and recall costs that could potentially materially adversely affect the Company's profitability and reputation. To this end, Magna is experiencing increased customer pressure to assume greater warranty responsibility. Although the social factor could have some negative credit impact, Morningstar DBRS estimates such to be suitably absorbed by Magna's strong financial profile and therefore does not result in any change in the credit ratings or trends assigned to Magna.

There were no Environmental/Governance factor(s) 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 (May 16, 2025) https://dbrs.morningstar.com/research/454196

Notes:
All figures are in U.S. dollars 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 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 Global Corporate Criteria (February 3, 2025)
https://dbrs.morningstar.com/research/447186
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025)
https://dbrs.morningstar.com/research/454196

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@dbrsmorningstar.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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed credit ratings:

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.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

Lead Analyst: Robert Streda, Senior Vice President,
Rating Committee Chair: Anke Rindermann, Managing Director
Initial Rating Date: November 26, 1985

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

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