Nissan Motor credit rating downgraded to ’BB’ by S&P amid bleak earnings outlook

Investing.com -- S&P Global Ratings has downgraded the long-term issuer credit ratings of Nissan (OTC:NSANY) Motor and its overseas subsidiaries to ’BB’, citing dismal prospects for a quick revival in the company’s earnings. The agency also maintained the short-term issuer credit ratings at ’B’ on March 7, 2025. The outlook for the automobile giant remains negative, reflecting the agency’s view that Nissan’s creditworthiness may continue to deteriorate in the face of an adverse operating environment and persistent free cash flow losses.

The downgrade was prompted by the agency’s belief that Nissan Motor’s chances for a swift recovery in its automotive business to match the levels of similarly rated peers are remote. The company’s financial resilience in the face of sudden changes in the external environment and other stress scenarios has declined due to increasing risk. The agency estimates that it will take approximately two years for Nissan Motor Co. Ltd. to fully realize the cost savings from its restructuring measures.

The company plans to implement ¥400 billion cost reduction measures from fiscal 2025 to fiscal 2026. These measures include plant closures and job cuts, which are expected to be initiated in fiscal 2026. However, despite these cost-cutting efforts, the agency does not project the company’s EBITDA margin to reach 6% in the next one to two years.

The agency also anticipates a challenging competitive environment, rising costs due to inflation, and pressure on profitability as electric vehicle (EV) sales increase. In China, one of Nissan Motor’s main markets, unit sales are expected to continue trending downward in 2025 and beyond. The company also faces challenges in the U.S., another key market, where increasing unit sales while reducing incentives will be difficult.

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Nissan Motor’s competitiveness and earnings base in key markets have declined, according to the agency. The company plans to launch hybrid vehicles in the U.S. and EVs in China, both of which are in high demand in each region, and to expand its lineup. However, the company’s performance slump may hinder its ability to allocate enough resources to develop these products.

Nissan Motor’s financial durability under stress scenarios has declined due to rising risk to its business performance. The company’s net cash in the automotive segment decreased to over ¥1.2 trillion at the end of December 2024 from over ¥1.5 trillion at the end of March 2024. The company’s free cash flow from its automotive division fell sharply into negative territory due to a sharp decline in earnings and an increase in investment burdens.

The agency’s negative outlook reflects its view that the challenging business environment will continue to negatively impact Nissan Motor’s credit profile. There is heightened risk in the company’s path to restoring profitability and free cash flow amid its restructuring process. Over the next six to 12 months, the agency may consider further downgrading the company if it observes a continuous significant negative free operating cash flow, deteriorating funding capability and rising funding costs, or a further decline in the company’s competitiveness and market position in key regions such as North America and China.

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