Morningstar DBRS Downgrades Nissan Motor Co., Ltd. to BB, Negative Trends; Removes Credit Ratings From Under Review With Negative Implications

DBRS Limited (Morningstar DBRS) downgraded Nissan Motor Co., Ltd.'s (Nissan or the Company) Issuer Rating to BB from BBB (low). Additionally, pursuant to its "Morningstar DBRS Global Corporate Criteria/Recovery Ratings for Non-Investment-Grade Corporate Issuers" (February 3, 2025), Morningstar DBRS also downgraded the instrument rating on Nissan's Senior Unsecured Debt to BB from (BBB (low)) with a recovery rating of RR4. Concurrently, Morningstar DBRS downgraded Nissan Canada Inc.'s Senior Unsecured Debt credit rating to BB (from BBB (low)) with a recovery rating of RR4. The trend on all credit ratings is Negative. With these rating actions, Morningstar DBRS removed Nissan's credit ratings from Under Review with Negative Implications, where they were placed on February 25, 2025.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings downgrade reflects Nissan's substantially weaker operating performance in the 2024 fiscal year (F2024, ended March 31, 2025), with the Company's core automotive business incurring an operating loss of JPY 216 billion (approximately $1.4 billion) for the fiscal year, and the segment's free cash flow amounting to negative JPY 243 billion (approximately $1.6 billion). Accordingly, Nissan revised its previously announced restructuring activities, with the Company now targeting (among other items) JPY 500 billion ( approximately $3.3 billion) in cost reductions by F2026, with Nissan planning to close seven plants and implement staff reductions of 20,000 employees by F2027. Moreover, the Company continues to seek a strategic partner, with the potential business integration with Honda Motor Co., Ltd. (rated A (high) with a Stable trend) seemingly remaining rather unlikely.

Morningstar DBRS notes that the Trump administration's trade policies that increased tariffs globally significantly affect Nissan, with the United States representing a key sales market for the Company and Nissan having a sizable manufacturing presence in Mexico. Nissan has publicly estimated that its gross exposure to the changing tariffs could approach JPY 450 billion (approximately $2.9 billion) in F2025, although this could be offset by as much as 30% through implemented countermeasures that include close collaboration with the supply base (on mitigation plans) and prioritizing retail sales of U.S.-assembled models. This notwithstanding, Nissan has indicated that the tariff environment remains highly uncertain, with the Company electing to suspend its F2025 guidance as a result.

CREDIT RATING DRIVERS
Ongoing weak operating performance (i.e., largely consistent with or trending weaker relative to Nissan's F2024 results) of the Company amid continued industry challenges, exacerbated by uncertainties associated with changing global tariff policies, would likely lead to a further downgrade of the credit ratings. Conversely, while unlikely over the near term, a marked improvement in Nissan's operating performance, resulting in gross free cash flow approaching breakeven levels, could result in positive credit rating actions. Morningstar DBRS also notes that a strategic tie-up or substantial business integration with another automotive original equipment manufacturer (OEM) or technological partner, would likely result in Nissan's credit ratings being placed Under Review.

EARNINGS OUTLOOK
Morningstar DBRS notes that Nissan, as with several other global automotive OEMs, has suspended its guidance for operating profit, net income, and automotive free cash flow for F2025, citing uncertainty related to the tariff environment. While Morningstar DBRS nonetheless estimates the Company's F2025 performance to moderately improve compared with very weak F2024 results, Morningstar DBRS expects Nissan's core automotive operations to incur a further operating loss in F2025, albeit likely narrowing year over year, in line with ongoing cost challenges, weakening performance in China, and uncertainties due to the developing tariff policies, which could likely result in a softening of global automotive demand.

FINANCIAL OUTLOOK
Consistent with its earnings outlook, Morningstar DBRS anticipates Nissan's cash flow from operations to remain under pressure in F2025, likely approaching only slightly positive levels. While Morningstar DBRS notes that dividends are suspended because of Nissan's weak earnings, capital expenditures, notwithstanding some anticipated moderation thereof, are likely to persist at sizable levels. Sizeable restructuring expenses and corresponding cash outflows will also contribute to weaker cash generation capacity over the next two years. Accordingly, Morningstar DBRS expects Nissan's free cash flow will remain substantially negative in F2025. Morningstar DBRS notes, however, that for the time being, this remains considerably offset by strong cash balances of JPY 2.2 trillion (approximately $14.3 billion) of the Company's automotive operations, bolstered by available credit lines that, for the automotive operations, totalled approximately JPY 600 billion (approximately $3.9 billion) as of March 31, 2025.

CREDIT RATING RATIONALE
Comprehensive Business Risk Assessment (CBRA): BBH/BB
Nissan's CBRA reflects its position as a global automotive OEM, ranking eighth globally on a standalone basis, according to 2024 sales volume data. While Nissan's market position was somewhat strengthened by the Renault-Nissan-Mitsubishi Alliance (the Alliance), Morningstar DBRS notes that the future of the Alliance remains subject to considerable uncertainty with Nissan seeking a further strategic partner and with minimum cross ownership voting rights being recently further reduced to 10% (from the prior level of 15%). Morningstar DBRS notes that the Nissan brand remains among the world's strongest mainstream automotive brands. However, this is partly offset by its Infiniti brand, which is not as well established in the premium automotive space.

Nissan's geographic diversification is somewhat favourable¿the Company is well established across most major markets¿although Morningstar DBRS acknowledges that Nissan is currently facing significant challenges in China, primarily due to much stronger competition from domestic new energy vehicle manufacturers. Moreover, the Company's geographic diversification is tempered further as Nissan`s recovery plans are highly dependent on North America. Nissan's poor operating efficiency is underscored by the Company's weak capacity utilization (at approximately 70% as of F2024), with the Company targeting substantial plant closures and employee headcount reductions by F2027. Regarding tightening emissions standards and the progressive electrification of its vehicle fleet, Nissan is currently adversely affected by a relative lack of hybrid product offerings in the key U.S. market, with the popularity of hybrids recently increasing amid slowing momentum around the future adoption of full electric vehicles (EVs). Finally, we note that Nissan's CBRA reflects uncertainty around the future strategic direction of the Company as it seeks a new business partner.

Comprehensive Financial Risk Assessment (CFRA): BBL
Nissan's CFRA incorporates its substantially weaker operating performance, with only a modest earnings recovery anticipated over the near term. As such, earnings- and cash flow-based credit metrics are estimated to persist at lacklustre levels (i.e., BB and below) over the next two years. This is partly offset, however, by Nissan's strong balance sheet with sizable cash balances and ample availability of committed credit lines.

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

Additional Considerations: None
Nissan'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://www.dbrsmorningstar.com/research/454671.

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

Environmental (E) Factors
The following Environmental factor had a relevant effect on the credit analysis: Morningstar DBRS considered that the environmental factor related to carbon and greenhouse gas emissions represented a relevant negative factor as the rapid spread of electrified vehicles and stricter regulations on greenhouse gas 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 (NGP), NGP2030. Nissan is targeting the achievement of carbon neutrality across the Company's operations and the lifecycle of its products by 2050. As part of these efforts, Nissan is increasing investments toward accelerating the electrification of its product portfolio. By F2030 (ended March 31, 2031), Nissan is aiming to introduce a total of 34 EV models, covering all vehicle segments, while also increasing its model mix of EVs to 60% globally. Nissan's electrification efforts entail substantial investments of the Company.

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 (May 16, 2025) https://dbrs.morningstar.com/research/454196.

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 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 (May 16, 2025)
https://dbrs.morningstar.com/research/454196
-- 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.

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

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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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