DBRS Limited (DBRS Morningstar) upgraded Stellantis N.V.’s (Stellantis or the Company) Issuer Rating and Senior Unsecured Debt rating to BBB (high) from BBB. Concurrently, DBRS Morningstar also upgraded Stellantis Finance US Inc.’s Senior Unsecured Debt rating to BBB (high) from BBB and changed the trends on all ratings to Stable from Positive. The rating upgrades reflect Stellantis’ continued solid financial performance that has caused its financial risk assessment (FRA) to strengthen to levels that readily exceed the former ratings. DBRS Morningstar notes further that the Company’s business risk assessment (BRA) remains sound as a major automotive original equipment manufacturer (ranking fourth in global sales volumes, per 2021 data) with a strong brand portfolio and quite reasonable geographic diversification, notwithstanding ongoing challenges in the Chinese market.
DBRS Morningstar had previously indicated (in its press release “DBRS Morningstar Changes Trend on Stellantis N.V. to Positive from Stable, Confirms at BBB” dated January 27, 2022) that the Company’s ongoing solid operating performance would likely result in an upgrade of the ratings. Despite decreasing global deliveries for the second consecutive year (with shipments being adversely affected by the global semiconductor shortage and other supply chain challenges), 2021 earnings were significantly higher year over year, with the lower volumes readily more than offset by stronger pricing and firmer product mix. In H1 2022, Stellantis’ earnings performance continued to trend higher (compared with the similar prior-year period), with the above-mentioned factors remaining essentially consistent, supplemented by significantly favourable foreign exchange developments. As such, the Company’s adjusted operating margin in H1 2022 was at a very strong level of 14.1%. For 2022, Stellantis indicated that it expects its annual adjusted operating income to attain double-digit levels, and the Company is well on track to readily meeting its guidance.
Going forward, DBRS Morningstar expects Stellantis’ operating performance to likely soften (albeit from very strong recent levels), with increasing volumes (in line with the progressive resolution of the semiconductor shortage) being more than offset by declining product mix and pricing, consistent with higher vehicle supply. Additionally, DBRS Morningstar acknowledges that consumer sentiment may weaken considerably over the near term as a result of inflationary pressures, rising interest rates, and geopolitical uncertainty; this could significantly abate the considerable pent-up vehicle demand that has accumulated over much of the past two years. However, while these headwinds are present globally, they appear to be of a slightly lesser magnitude in North America (which accounts for the majority of the Company’s earnings) compared with other major geographic markets, thereby benefitting Stellantis. Moreover, the Company's profitability is underpinned by its favourable industrial breakeven point, estimated by Stellantis at materially less than 50% of 2022 shipments. As such, despite an anticipated decline in earnings, DBRS Morningstar nonetheless projects Stellantis’ operating margins over the medium term to persist in the high single-digit range, which remains favourable for the automotive industry. Finally, the Company’s liquidity position is very strong, with industrial cash balances as of June 30, 2022, in the amount of EUR 46.9 billion (representing a substantial net cash position of EUR 22.1 billion), supplemented by available (undrawn) credit lines of EUR 12.8 billion. As such, notwithstanding increasing capital expenditure/investment requirements (significantly reflecting the progressive electrification of the industry) amid ongoing sizable dividend payments, DBRS Morningstar estimates Stellantis’ FRA to remain supportive of the upgraded ratings.
Consistent with the Stable trends on the ratings, DBRS Morningstar expects the Company’s ratings to remain constant over the near to medium term. While significantly weaker earnings amid ongoing high investments—resulting in material negative free cash flow and thereby adversely affecting credit metrics—could have negative rating implications, DBRS Morningstar deems such a scenario rather unlikely, noting that Stellantis’ FRA provides some cushion even in the context of the upgraded ratings. Further positive actions are also somewhat unlikely, as DBRS Morningstar is taking into account the aforementioned sizable cost and investment requirements facing the Company, with the ratings also being somewhat underpinned by Stellantis’ existing BRA.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Environmental (E) Factors
DBRS Morningstar considered that the Environmental factor, specifically costs relating to carbon and greenhouse gas emissions, represents a relevant factor as Stellantis is subject to a wide range of environmental compliance requirements relating to carbon dioxide (CO2), fuel efficiency, emissions control, and other factors. In the event that the Company would not comply with applicable regulations, significant penalties and reputational harm could result. Correspondingly, in 2021, Stellantis announced its intent to shift to electrification for all of its brands by 2025 with planned investments of more than EUR 30 billion over a similar time frame while shifting its research and development activities to focus on electrification and related technologies. Costs associated with the deployment of electrification and CO2-abating technologies may be difficult to pass through to customers, possibly undermining Stellantis’ future performance as a result.
Although the Environmental factor could have some negative credit impact, DBRS Morningstar does not deem it sufficient to change the ratings or the trends assigned to Stellantis.
There were no Social or Governance factors that had a significant or relevant effect on the credit analysis.
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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).
All figures are in euros unless otherwise noted.
The principal methodologies applicable to the ratings are Global Methodology for Rating Companies in the Automotive Manufacturing and Supplier Industries (October 14, 2022; https://www.dbrsmorningstar.com/research/404042) and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (April 4, 2022; https://www.dbrsmorningstar.com/research/394683).
The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions.
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This 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:
The last rating action on this transaction took place on January 27, 2022, when DBRS Morningstar changed the trends on Stellantis N.V. and Stellantis Finance US Inc. to Positive from Stable.
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
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.
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Lead Analyst: Robert Streda, Senior Vice President, Diversified Industries
Rating Committee Chair: Timothy O’Brien, Managing Director, Global Head of Diversified Industries
Initial Rating Dates: Stellantis N.V. – January 27, 2021
Stellantis Finance US Inc. – September 10, 2021
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