DBRS Limited (DBRS Morningstar) changed the trend on the Issuer Rating of BMW AG (BMW or the Company) as well as the Senior Unsecured Debt rating of its subsidiary, BMW Canada Inc., to Stable from Negative while confirming the ratings at A (high). The trend change reflects the ongoing solid financial performance of the Company despite meaningful challenges associated with the progression of the Coronavirus Disease (COVID-19) last year. Moreover, despite prevailing headwinds (notably including the global semiconductor shortage), the Company’s financial risk assessment (FRA) is estimated to remain strong in the context of the current ratings, which remain supported by BMW’s solid business risk assessment as a globally leading premium automotive original equipment manufacturer (OEM).
While BMW’s 2020 results softened significantly year over year (YOY) because of challenges associated with the coronavirus pandemic, earnings of the Company’s industrial operations remained materially positive with the operating margin exceeding 4%; BMW having benefitted from a strong automotive industry recovery in H2 2020 that exceeded DBRS Morningstar’s expectations. Earnings were further bolstered by solid performance in China (the Company’s single largest market), where BMW’s 2020 deliveries increased by 7.4% YOY notwithstanding an ongoing (albeit moderating) decline in the regional automotive market. In H1 2021, the Company’s industrial performance continued to trend positively, with Automotive segment earnings being sharply higher compared with H1 2020 given higher volumes (BMW thus far being somewhat less affected by the semiconductor shortage relative to other OEMs), firmer product mix, and pricing gains. Additionally, earnings of the Company’s Financial Services segment attained very strong levels as a function of resumed growth in addition to the reversal of credit risk provisions and very favourable residual value performance reflecting firm used vehicle pricing (given ongoing low industry inventory levels). For 2021, despite headwinds in the form of the aforementioned semiconductor shortage and increasing raw material costs, BMW is projecting consolidated (pre-tax) earnings to increase significantly YOY; DBRS Morningstar deems the Company’s outlook readily attainable.
Going forward, DBRS Morningstar notes that the automotive industry faces meaningful challenges over the next several years in line with the increasing electrification of vehicles (as a function of emission regulations being tightened globally) amid ongoing investments in new mobility business initiatives. BMW remains well positioned to withstand these challenges given its (1) highly established presence in the premium automotive segment that typically generates higher margins while also being more resilient to downturns and (2) strong FRA, which reflects its consistent operating performance and conservative financial policy.
Consistent with the Stable trends, the ratings are expected to remain constant over the near to medium term; DBRS Morningstar notes that BMW’s FRA provides some cushion even at the existing ratings level, rendering a downgrade unlikely. Conversely, an upgrade is not anticipated over a similar time horizon in line with the aforementioned cost headwinds facing the industry.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
All figures are in euros unless otherwise noted.
The principal methodologies are Rating Companies in the Automotive Manufacturing and Supplier Industries (October 22, 2020; https://www.dbrsmorningstar.com/research/368670) and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (May 31, 2021; https://www.dbrsmorningstar.com/research/379424), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
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 firstname.lastname@example.org.
The rating was not initiated at the request of the rated entity.
The rated entity or its related entities did not participate in the rating process for this rating action. DBRS Morningstar did not have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
This is an unsolicited credit rating.
This rating is 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 ratings:
Each of the principal methodologies employed in the analysis addressed one or more particular risks or aspects of the rating and were factored into the rating decision. Specifically, Rating Companies in the Automotive Manufacturing and Supplier Industries (October 22, 2020) as the primary rating methodology was used in determining the rating of the parent company, BMW AG. Subsequently, DBRS Morningstar Criteria: Guarantees and Other Forms of Support (May 31, 2021) was applied in determining the rating of BMW Canada Inc., which benefits from a guarantee from BMW AG. The guarantee, in combination with DBRS Morningstar’s assessment of additional implicit support considerations, including (but not limited to) business, reputational, and financial factors that are deemed likely to motivate a parent or affiliated company to support its subsidiary issuer, results in a flow-through of BMW AG’s rating to BMW Canada Inc.
The last rating action took place on September 29, 2020, when DBRS Morningstar confirmed BMW AG at A (high), with a Negative trend and removed all of the ratings from Under Review with Negative Implications.
With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, this is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer.
With Rated Entity or Related Third Party Participation: NO
With Access to Internal Documents: NO
With Access to Management: NO
Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.
Lead Analyst: Robert Streda, Senior Vice President, Diversified Industries
Rating Committee Chair: Tom Currie, Managing Director, Credit Ratings
Initial Rating Dates: August 17, 2006 (BMW AG) and May 10, 2013 (BMW Canada Inc.)
The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at email@example.com.
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-- Rating Companies in the Automotive Manufacturing and Supplier Industries (October 22, 2020)
-- DBRS Morningstar Criteria: Guarantees and Other Forms of Support (May 31, 2021)