DBRS Morningstar Confirms BMW AG at A (high) and Assigns A (high) Credit Rating to BMW Finance N.V., Trends Are Stable

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating of BMW AG (BMW or the Company) as well as the Senior Unsecured Debt rating of its subsidiary, BMW Canada Inc., at A (high), all with Stable trends. Concurrently, DBRS Morningstar assigned a Senior Unsecured Debt rating of A (high) to BMW Finance N.V. BMW Finance N.V.’s credit rating is consistent with that of its ultimate parent, BMW. The credit rating equivalency takes into account the guarantee dated May 10, 2023, between BMW and BMW Finance N.V., in addition to DBRS Morningstar’s assessment of BMW Finance N.V. as a strategically important subsidiary of BMW. The credit ratings continue to reflect BMW’s solid business risk assessment as a leading global original equipment manufacturer of premium automotive vehicles. Furthermore, the Company’s financial performance has remained strong with the associated financial risk assessment (FRA) well commensurate with the assigned credit ratings.

BMW’s 2022 industrial results improved year over year (despite enduring production disruptions associated with the global semiconductor shortage and other supply chain challenges), with firm product mix and strong pricing more than offsetting constrained volumes, higher logistics expenses, as well as increases in raw material and energy costs. In H1 2023, amid moderately higher volumes (compared with the similar prior year period), earnings continued to trend positively, with favourable mix and pricing effects more than offsetting ongoing cost headwinds. Moreover, despite some normalization of earnings from very high prior levels, profitability of the Company’s Financial Services business persisted at sound levels in 2022 and H1 2023, with the segment continuing to benefit from favourable residual value performance and the credit quality of the portfolio remaining strong. For 2023, referencing its high order backlog, the Company is projecting the Automotive EBIT margin to range between 9% and 10.5% (compared with 8.6% achieved in 2022). DBRS Morningstar considers BMW's profit target to be 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, which 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, DBRS Morningstar expects the assigned credit ratings to remain constant over the medium term, with BMW solidly placed at the current rating category. Though unlikely, a negative credit rating action could result from a significant and sustained deterioration in operating results, leading to a material weakening in the Company’s FRA. Conversely, an upgrade is also unlikely and not anticipated over a similar time horizon in line with the meaningful cost and investments headwinds facing the industry, thereby likely precluding a further strengthening in BMW’s financial profile to positively affect the credit ratings.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Environmental (E) Factors
DBRS Morningstar considered that the Environmental factor, specifically costs relating to carbon and greenhouse gas emissions, represent a relevant factor as BMW is subject to a wide range of compliance requirements relating to (among other factors) CO2, fuel efficiency, and emissions control. The Company has been actively investing in its vehicle-electrification strategy. By 2030, BMW is targeting an 80% reduction in carbon emissions per vehicle in production, while also targeting at least a 50% reduction in carbon emissions during a vehicle’s use phase. In terms of contribution to sales, the Company is focusing on increasing the share of electric vehicle sales to at least 30% by 2025 and at least 50% by 2030 (from the 2021 level of 13%).

While the Environmental factor could have some negative credit impact, DBRS Morningstar does not deem it sufficient to change the credit ratings or the trends assigned to BMW.

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/416784 (July 4, 2023).

Notes:
All figures are in euros unless otherwise noted.

DBRS Morningstar applied the following principal methodologies:
-- Global Methodology for Rating Companies in the Automotive Manufacturing and Supplier Industries (October 14, 2022; https://www.dbrsmorningstar.com/research/404042)
-- DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support (March 28, 2023; https://www.dbrsmorningstar.com/research/411694)

The credit 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.

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 info@dbrsmorningstar.com.

The credit rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the credit rating process for this credit rating action.

DBRS Morningstar did not have access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is an unsolicited credit rating.

This credit 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 credit ratings:

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 credit 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: https://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

Lead Analyst: Robert Streda, Senior Vice President, Diversified Industries
Rating Committee Chair: Timothy O’ Brien, Senior Vice President, Diversified Industries
Initial Rating Date: BMW AG August 17, 2006
BMW Canada Inc. May 10, 2013
BMW Finance N.V. September 28, 2023

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrsmorningstar.com.

Information regarding DBRS Morningstar credit ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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