Nissan downgraded to ’BB-’ by S&P on profitability concerns

Investing.com -- S&P Global Ratings has downgraded Nissan Motor Co. Ltd. to ’BB-’ from a higher rating, citing ongoing pressure on the automaker’s profitability. The outlook remains negative.

The rating agency expects Nissan’s EBITDA margin in its automotive division to improve to only about 3% by fiscal 2027, even if the company successfully implements its planned turnaround strategy.

Multiple factors are hampering Nissan’s recovery efforts, including tariff costs, a challenging competitive landscape, and rising expenses due to inflationary pressures. S&P noted that the company’s competitiveness in key markets and operational efficiency have weakened, making its performance vulnerable to sustained pressure.

Financial strain on Nissan is increasing, with S&P forecasting negative free operating cash flow (FOCF) for the automotive division over the next one to two years. This negative outlook stems from stagnant profitability and the burden of investments aimed at enhancing competitiveness.

The company’s net cash position in its automotive division has declined to approximately ¥1 trillion as of September 2025, down from about ¥1.5 trillion at the end of March 2025.

S&P believes Nissan’s financial flexibility will be supported by fiscally conservative policies that prioritize financial soundness, such as dividend suspension and asset sales. The company’s bond issuance of approximately ¥860 billion in July 2025 has helped mitigate immediate funding risks.

The rating agency highlighted that Nissan’s profitability and cash flow continue to lag significantly behind similarly rated peers. While competitors like Renault S.A., Volvo Car AB, and Mitsubishi Motors Corp. are expected to maintain EBITDA margins of 5%-8% over the next one to two years, Nissan’s EBITDA margin is forecast to improve to only around 1% in fiscal 2026 from a negative figure in fiscal 2025.

S&P may consider further downgrading Nissan if its profitability and cash flow significantly deviate from the base case, leading to continued erosion of its net cash position, or if performance deterioration causes liquidity issues.

An outlook revision to stable would require evidence of recovery in profitability and free operating cash flow in Nissan’s automotive division over the next few years, supported by stable sales volume and effective cost-cutting measures.

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