After undergoing severe restructuring, Nissan, one of Japan's Big 3 automakers, has ultimately lost its investment-grade rating. Amid a paradigm shift toward electric vehicles, major global automakers are struggling with deteriorating profitability, and Nissan has become the first company whose credit rating has fallen to speculative grade.
On the 7th (local time), international credit rating agency Standard & Poor's (S&P) announced that it downgraded Nissan's long-term credit rating from 'BBB-' to 'BB+'. BBB- corresponds to investment grade, while BB+ is a speculative (junk) grade that requires caution in investment. S&P explained that the downgrade was due to Nissan's performance being weaker than initially expected and the outlook for another difficult year this year.
However, S&P stated that the rating outlook remains stable due to gradually improving profitability, conservative financial control discipline, and expectations of maintaining a sound financial condition.
Nissan is expected to return to profitability with an operating profit of 360 billion yen (approximately 3.4555 trillion KRW) for the fiscal year 2022 ending this month. After returning to a loss for the first time in 11 years since the 2008 Lehman Shock, Nissan experienced poor performance for two consecutive years starting in 2019.
The reason for the downgrade despite the expected return to profit is attributed to sluggish sales. Nissan's sales volume outside Japan significantly decreased last year.
As of the end of the third quarter last year (April to December), Nissan's global vehicle sales were 2.411 million units, a sharp decline compared to 4.95 million units in the same period the previous year. Sales in the North American market (United States, Mexico, and Canada) were 707,000 units, down 22.6% year-on-year, marking the largest decrease. Sales in Europe and China also fell by 20.4% and 17.8%, respectively, causing a steep drop in sales in most overseas markets except Japan.
While the weak yen (depreciation of the yen) increased demand for Japanese cars in overseas markets, partially offsetting production disruptions caused by supply chain chaos, the outlook is not optimistic as the advantage is disappearing with the yen turning stronger.
S&P expects that ongoing supply chain disruptions will delay sales recovery in North America and Europe, and the sluggish sales will lead to downward pressure on prices. Nissan forecasts vehicle sales of 3.6 to 3.7 million units for the fiscal year 2024, which is significantly below the company's mid-to-long-term business target of 5.4 million units.
S&P stated, "Slowing new car sales in the U.S. and Europe in the second half of this year will pressure sales prices," and predicted that "the company's performance will remain weak for more than three years." It also forecasted that Nissan will continue to lag behind competitors in sales and production efficiency over the next one to two years.
S&P warned that it could further downgrade the rating if cash flow turns negative or if market share in North America or China declines further. However, it added, "If sales performance significantly improves and cash flow increases over the next 12 to 18 months, we will consider an upgrade."
Nissan, an automaker based in Yokohama, Japan, formed an alliance with Renault in 1999 through cross-shareholding, and expanded to the Renault·Nissan·Mitsubishi alliance the following year when Mitsubishi joined. Nissan has been undergoing harsh restructuring since before the COVID-19 pandemic due to worsening management difficulties amid internal conflicts and power struggles, including the arrest of former chairman Carlos Ghosn.
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