Nissan's Recovery Isn't Fast Enough to Stave Off S&P Junk Credit Rating

While Nissan recovered from two years of losses and is still targeting an operating profit of ¥360 billion ($2.7 billion) for the fiscal year ending this month, there’s a dearth of new models to appeal to car buyers. A weaker yen in late 2022 also helped boost income brought home, which made up for production snags, but that advantage is fading as the currency strengthens.

“Performance at the company has been sluggish for more than three years,” S&P said in a statement. “We now expect its earnings will remain weaker than we previously assumed given the prospect of another difficult year in 2023.” [...]

A junk rating means Nissan will have to pay higher costs to sell foreign currency bonds abroad. While the Yokohama-based company sold a yen-denominated sustainability bond in January, it last sold dollar and euro bonds in 2020. The price of its dollar-denominated note maturing in 2027 dropped 0.2 cents to 91.1 cents on the dollar on Tuesday. It has fallen about ¥3 since the beginning of February.

Japanese bond issuers with junk ratings include SoftBank Group Corp. and Rakuten Group Inc., which have BB+ and BB from S&P, respectively. The cost to insure Nissan Motor’s debt against default jumped after S&P Global Ratings lowered the carmaker’s credit rating to junk.

“The more we dig into this whole shift, it’s becoming more and more apparent that it’s not cheap. And it’s complicated. And it’s time-consuming,” said Rinaldi Halim, president of Sierra Automotive Group, which has six stores selling Chrysler, Dodge, Jeep, Ram, Subaru, Honda and Chevrolet vehicles in Los Angeles and Monrovia, Calif.

While dealers have extensive experience with facility upgrades, the technical nature of installing chargers at commercial scale is often beyond their expertise. Depending on the age of the building, the proximity and capacity of their current transformer and other factors, dealers must develop custom solutions to meet their brands’ requirements.

With some exceptions, most automakers have outlined EV plans that require dealers to install various numbers of Level 2 and Level 3 chargers at their stores over the next few years.

Dealers are spending $400,000 to $750,000 to install infrastructure for Level 3 chargers — the fastest type, which takes 15 to 20 minutes to refill most of an EV’s charge. They are adding transformers, switchgears and panels, a process that typically involves drilling through parking lot pavement or even through a public road or alley, consultants and dealers said. Dealers are often learning about construction needs as they go.

“It’s coming down the pike so fast — all these EV requirements. Everybody is on a learning curve,” said Casey Griffin, president at Logan Asset Management, which helps auto retailers plan upgrades.

In an effort to cut costs, the company last month laid off 6% of its workforce.

Late last year, it shelved plans to build delivery vans in Europe with Mercedes and had earlier pushed back by a year to 2026 the planned launch of a smaller R2 vehicle family at the $5 billion plant it is building in Georgia.

Rivian, which has been losing money on every vehicle it builds, forecasts 2023 production well below analysts’ estimates as it grapples with lingering supply chain bottlenecks after narrowly missing its target last year.

Rivian said the bonds would be “green” ones, which typically offer companies the chance to raise debt more cheaply from investors who are willing to take lower returns in exchange for supporting green projects.