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AUTOMOTIVE: Nissan (NSANY Baa3[N]/BB+[N]/BBB-[N]): S&P Outlook Negative

AUTOMOTIVE
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Real risk of a downgrade coming, with positive FCF looking like a high bar. The potential Honda merger is the main spread driver, so we see limited impact on this. That aside, we already see downgrades from the other agencies as likely; spreads were in double B territory before the Honda story.

  • Already a notch lower than the other two major rating agencies, S&P belatedly put Nissan on outlook negative following very weak 2Q24 results in November.
  • Since then, announced merger talks with Honda triggered a large convergence rally. S&P doesn’t take the possibility into account for now.
  • The issues are well known at this point. S&P points to high incentives in a bid to reduce inventory and pressuring margins; weak competitive position lacking hybrids in the US and EVs in China; negative FCF draining the cash position.
  • S&P strikes a somewhat optimistic tone, expecting reforms to help it reduce costs and inventory quickly. It expects a return to positive FCF soon; if it remains negative for the next 3-6 months that could trigger a downgrade. Consensus has small positive for the rest of the year but negative for FY25 and 26.
  • Declines in sales, ongoing high incentives, failure to implement cost savings and tariff/FX impact are listed as further risks.
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Real risk of a downgrade coming, with positive FCF looking like a high bar. The potential Honda merger is the main spread driver, so we see limited impact on this. That aside, we already see downgrades from the other agencies as likely; spreads were in double B territory before the Honda story.

  • Already a notch lower than the other two major rating agencies, S&P belatedly put Nissan on outlook negative following very weak 2Q24 results in November.
  • Since then, announced merger talks with Honda triggered a large convergence rally. S&P doesn’t take the possibility into account for now.
  • The issues are well known at this point. S&P points to high incentives in a bid to reduce inventory and pressuring margins; weak competitive position lacking hybrids in the US and EVs in China; negative FCF draining the cash position.
  • S&P strikes a somewhat optimistic tone, expecting reforms to help it reduce costs and inventory quickly. It expects a return to positive FCF soon; if it remains negative for the next 3-6 months that could trigger a downgrade. Consensus has small positive for the rest of the year but negative for FY25 and 26.
  • Declines in sales, ongoing high incentives, failure to implement cost savings and tariff/FX impact are listed as further risks.