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      Scope upgrades Mercedes-Benz Group AG’s issuer rating to A+/Stable from A/Positive

      Daimler AG - EUR 1,250,000,000 0.850% Bond due February 28, 2025 Daimler AG - EUR 110,000,000 1.375% Bond due January 11, 2030 Daimler Finance North America LLC - USD 750,000,000 3.450% Bond due January 06, 2027 DAIG 1.000 11/11/25 MTN DAIG 1.500 02/09/27 MTN DAIG 1.500 07/03/29 MTN DAIG 1.875 07/08/24 MTN DAIG 0.850 11/14/25 MTN DAIG 1.375 05/11/28 MTN DAIG 1.600 10/01/25 MTN DAIG 1.000 11/15/27 MTN DAIG 2.125 07/03/37 MTN DAIG 2.000 02/27/31 MTN DAIG 1.500 03/09/26 MTN DAIG 1.375 06/26/26 MTN DAIG 0.140 07/03/24 FRN MTN DAIG 2.700 06/14/24 DAIG 2.700 06/14/24 DAIG 4.300 02/22/29 DAIG 4.300 02/22/29 DAIG 2.125 03/10/25 DAIG 2.125 03/10/25 DAIG 2.625 03/10/30 DAIG 2.625 03/10/30 DAIG 3.100 08/15/29 DAIG 3.750 02/22/28 DAIG 3.750 02/22/28 DAIG 3.100 08/15/29 DAIG 3.450 01/06/27 DAIG 0.375 11/08/26 MTN DAIG 1.125 08/08/34 MTN DAIG 1.125 11/06/31 MTN DAIG 0.750 02/08/30 MTN DAIG 2.625 04/07/25 MTN DAIG 2.270 11/12/24 MTN DAIG 0.625 05/06/27 MTN DAIG 1.625 11/11/24 MTN DAIG 3.100 04/21/25 MTN DAIG 2.375 05/22/30 MTN DAIG 2.000 08/22/26 MTN DAIG 0.750 09/10/30 MTN DAIG 1.650 09/22/25 DAIG 1.450 03/02/26 DAIG 2.450 03/02/31 DAIG 2.450 03/02/31 DAIG 0.750 03/11/33 MTN DAIG 1.450 03/02/26 DAIG 0.207 07/01/24 FRN MTN DAIG 3.300 09/27/24 MTN DAIG 09/17/24 MTN DAIG 3.250 08/01/24 DAIG 01/20/25 MTN MBG 3.500 08/03/25 MBG 3.500 08/03/25 MBG 3.300 05/19/25 MBG 3.300 05/19/25 MBG 3.250 08/01/24 MBG 8.500 01/18/31 MBG 2.550 08/26/24 MTN MBG 5.250 11/29/27 MBG 5.250 11/29/27 MBG 5.500 11/27/24 MBG 5.375 11/26/25 MBG 5.500 11/27/24 MBG 5.375 11/26/25 MBG 3.000 02/23/27 MTN MBG 4.750 01/19/26 MTN MBG 5.755 03/30/25 FRN MBG 4.800 03/30/26 MBG 4.950 03/30/25 MBG 5.755 03/30/25 FRN MBG 4.800 03/30/26 MBG 4.950 03/30/25 MBG 4.800 03/30/28 MBG 4.800 03/30/28 MBG 3.400 04/13/25 MTN MBG 4.650 06/05/26 MTN MBG 3.700 05/30/31 MTN MBG 3.500 05/30/26 MTN MBG 5.000 09/26/26 MTN MBG 4.500 10/06/26 MTN MBG 5.120 06/27/28 MBG 5.140 06/29/26 MBG 5.200 08/03/26 MBG 5.050 08/03/33 MBG 5.100 08/03/28 MBG 5.050 08/03/33 MBG 5.375 08/01/25 MBG 5.100 08/03/28 MBG 5.906 08/01/25 FRN MBG 5.375 08/01/25 MBG 5.200 08/03/26 MBG 5.906 08/01/25 FRN MBG 2.780 06/12/25 MBG 3.625 12/16/24 MBG 4.172 09/29/25 FRN MTN MBG 1.960 10/12/26 MTN MBG 2.108 10/12/29 MTN MBG 5.625 08/17/26 MTN MBG 4.850 11/16/26 MTN MBG 0.600 12/07/26 MTN MBG 0.520 10/06/26 MTN MBG 5.200 12/04/25 MTN MBG 4.676 11/20/25 FRN MTN MBG 5.210 11/27/26 MTN MBG 4.295 12/01/25 FRN MBG 3.250 06/20/25 MBG 2.900 11/29/24 MBG 2.980 06/20/24 MBG 1.000 01/18/27 MTN MBG 4.850 01/11/29 MBG 5.981 01/09/26 FRN MBG 4.850 01/11/29 MBG 4.900 01/09/26 MBG 5.000 01/11/34 MBG 5.981 01/09/26 FRN MBG 4.800 01/11/27 MBG 4.800 01/11/27 MBG 5.000 01/11/34 MBG 4.900 01/09/26 MBG 3.000 07/10/27 MTN MBG 3.250 01/10/32 MTN MBG 0.6 04/12/27 MBG 4.50 04/12/27 MBG 4.075 04/09/26
      FRIDAY, 22/12/2023 - Scope Ratings GmbH
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      Scope upgrades Mercedes-Benz Group AG’s issuer rating to A+/Stable from A/Positive

      The rating upgrade reflects the positive impact of structurally higher profitability on the business risk profile combined with an even stronger financial risk profile.

      The latest information on the rating, including rating reports and related methodologies, is available on this LINK.

      Rating action

      Scope Ratings GmbH (Scope) has today upgraded its issuer rating on Mercedes-Benz Group AG and its related issuing entities Mercedes-Benz International Finance B.V., Mercedes-Benz Canada Finance Inc., Mercedes-Benz Finance North America LLC and Mercedes-Benz Australia/Pacific Pty Ltd. to A+/Stable from A/Positive. Scope has also upgraded the rating on senior unsecured debt issued by Mercedes-Benz Group AG and all the related issuing entities, listed below, to A+ from A. Lastly, Mercedes-Benz Group AG’s short-term debt rating has been upgraded to S-1+ from S-1.

      The related issuing entities are Mercedes-Benz International Finance B.V., Mercedes-Benz Canada Finance Inc., Mercedes-Benz Finance North America LLC, Mercedes-Benz Finance Co. Ltd. and Mercedes-Benz Australia/Pacific Pty Ltd.

      Rating rationale

      The upgrade is driven by Mercedes-Benz’s improved business risk profile on the back of structurally higher operating profitability, stemming from the strategic shift to the luxury space, coupled with a continuous streamlining of the fixed cost base. In addition, Mercedes-Benz Group’s issuer rating continues to be strongly supported by its financial risk profile, which has further improved in terms of debt protection and net cash position.

      The business risk profile assessment is raised to A- from BBB+, primarily reflecting the marked improvement in operating profitability, which Scope views as sustainable. Since the Covid-19 pandemic, the company has demonstrated its ability to withstand numerous external shocks, including the Russia-Ukraine war, repeated lockdowns in China, as well as persistent semiconductor shortages, supply bottlenecks and logistical constraints. Thanks to a gradual recovery in volumes, positive net pricing (combining substantial price increases and lower discounts), a favourable product mix and strict cost discipline, the Scope-adjusted EBITDA margin has sharply recovered from 9% in 2020 to 15.8% in 2022.

      Following a very solid performance in H1 2023, Mercedes-Benz Group raised its full-year outlook and confirmed its guidance in October despite some challenges in Q3 2023, including supply constraints, disproportionate inflation-related supplier compensation costs, weak market conditions in China and intensified competition in the electric vehicle segment. Full-year 2023 Scope-adjusted EBITDA margin is expected at 15.4%, 40 bps below 2022. For 2024, Scope expects Mercedes-Benz Group to mitigate these headwinds with an improved product mix, further cost reduction and a continued prioritisation of margins over volumes. Scope expects the Scope-adjusted EBITDA margin to decline slightly to 15% in 2024 before rising to above 15% in 2025. All in all, while Mercedes-Benz Group is not immune to macroeconomic fluctuations, Scope expects the company to remain resilient thanks to its premium/luxury strategy, which will help to reduce its cyclicality and drive structurally higher margins compared to historical levels.

      Mercedes-Benz Group has maintained its overall competitive position despite its reduced size and diversification following the spin-off of Daimler Trucks. While the market share development has been under pressure at Mercedes-Benz Cars and Mercedes-Benz Vans in the past few years, both divisions have strengthened their brand positioning thanks to their focus on top-end segments and the associated technological push. Scope’s strong assessment of the company’s market position remains unchanged.

      Mercedes-Benz Group’s product and geographical diversification continues to support the business risk profile.

      Mercedes-Benz’s improved financial risk profile, assessed at AA+, remains the key support for the rating. This mainly reflects the company’s prudent financial policy, with a sizeable net cash position in the industrial business. Thanks to a significant free operating cash flow and despite a negative trend in working capital, net industrial liquidity as reported by the company reached EUR 26.6bn at end-2022, rising to EUR 28.5bn at end September 2023. As a net lender to the captive finance operations, Mercedes-Benz’s industrial business no longer bears any financial debt. Scope forecasts that Mercedes-Benz’s industrial business will preserve a sizeable Scope-adjusted net cash position in 2023-2025, reflected in strong credit metrics. In the absence of financial debt and in the context of higher interest rates, Scope expects Mercedes-Benz to generate a net interest income from 2023. After some volatility over the past decade, free operating cash flow has stabilised, thanks to drastic cash preservation measures, greater capex discipline and tight working capital management. Scope expects the industrial business to generate enough free operating cash flow to cover annual dividends.

      Liquidity is adequate in the absence of gross financial debt in the industrial business. In addition to sizeable unrestricted cash and cash equivalents, Mercedes-Benz Group benefits from an undrawn EUR 11bn revolving credit facility granted by an international banking consortium and converted into a sustainability-linked loan in 2022.

      Supplementary rating drivers are credit neutral. Despite a shareholder-friendly approach in terms of dividend distribution, Mercedes-Benz Group’s financial policy remains fairly prudent with its share-buyback programme of up to EUR 4bn over two years (2023-2024) not perceived by Scope as a permanent tool for remunerating shareholders. Scope also assesses the risk profile of the captive finance activities (Mercedes-Benz Mobility) as adequate, with no incremental risk to the Mercedes-Benz’s creditworthiness.

      Like all car manufacturers, Mercedes-Benz Group faces rising pressure from tightening environmental regulations (including potential fines for non-compliance) and the race to carbon neutrality (ESG factor). Addressing these challenges requires substantial investments in new technologies, innovative drivetrains, battery capacities and software capabilities. It also entails a deep transformation in manufacturing processes and workforce competencies (notably via training, reskilling and upskilling existing personnel while hiring new talents with more specific profiles). With its Ambition 2039 plan, the group has defined a clear pathway to CO2-neutrality for its core business, along the whole value chain.

      One or more key drivers of the credit rating action are considered ESG factors.

      Outlook and rating-change drivers

      The Outlook is Stable and reflects Scope’s expectation that Mercedes-Benz Group’s operating profitability will structurally improve and show strong resilience amid continued inflationary pressures, a challenging demand environment and intensified competition in the electric vehicle space. Scope anticipates that Mercedes-Benz Group’s profitability will be supported by further efficiency gains, enhanced pricing power as well as a richer mix driven by the portfolio reshaping toward the top-end of the premium segment. Scope’s base case assumes a Scope-adjusted EBITDA margin of around 15% in 2023-2025, above industry average and well above historical levels.

      The Stable Outlook also reflects Scope’s expectation that Mercedes-Benz Group will maintain a strong financial risk profile and solid credit metrics, even in a less supportive environment in the next 12-18 months. The company is expected to remain in a net cash position over the forecast period.

      A positive rating action is remote in Scope’s view but could occur if Mercedes-Benz Group successfully shifted its portfolio toward higher-margin products leading to Scope-adjusted EBITDA margins substantially above 16% on a sustained basis while displaying strong margin and cash flow resilience in adverse market conditions.

      A negative rating action could be considered if Mercedes-Benz Group’s Scope-adjusted EBITDA margin fell to around 12% on a sustained basis, as this would trigger a lower business risk assessment. This could be driven by more challenging industry business conditions or poor execution of the group’s premium and electrification strategy. A negative rating action could also be warranted if free cash flow generated in the group’s industrial business turned negative, triggered by a sustained decrease in operating profitability and /or a significant rise in investment spending.

      Long-term and short-term debt ratings

      Long-term senior unsecured debt rating has been upgraded to A+, the same level as the issuer rating. Notes issued by Mercedes-Benz Australia/Pacific Pty Ltd., Mercedes-Benz International Finance B.V., Mercedes-Benz Canada Finance Inc., Mercedes-Benz Finance North America LLC and Mercedes-Benz Finance Co. Ltd. benefit from an unconditional and irrevocable guarantee given by Mercedes-Benz Group AG.

      Mercedes-Benz Group’s short-term rating, is upgraded to S-1+, based on the upgraded A+/Stable issuer rating, supported by better-than-adequate liquidity, strong access to capital markets and well-established banking relationships. Scope believes that Mercedes-Benz Group would be able to address any short-term financing and refinancing requirements.

      Stress testing & cash flow analysis
      No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

      Methodology
      The methodologies used for these Credit Ratings and/or Outlooks, (General Corporate Rating Methodology, 16 October 2023; Automotive and Commercial Vehicle Rating Methodology, 19 December 2023), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
      Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
      The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

      Solicitation, key sources and quality of information
      The Rated Entity and/or its Related Third Parties did not participate in the Credit Rating process.
      The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
      Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
      Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings and/or Outloks were not amended before being issued.

      Regulatory disclosures
      These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
      Lead analyst: Georges Dieng, Director
      Person responsible for approval of the Credit Ratings: Thomas Faeh, Executive Director
      The Credit Ratings/Outlooks were first released by Scope Ratings on 27 April 2017. The Credit Ratings/Outlooks were last updated on 23 December 2022.
      The senior unsecured debt Credit Rating assigned to Mercedes-Benz Finance Co. Ltd. was first released by Scope Ratings on 20 November 2023.

      Potential conflicts
      See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings.

      Conditions of use/exclusion of liability
      © 2023 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.

      Daimler AG - EUR 1,250,000,000 0.850% Bond due February 28, 2025 Daimler AG - EUR 110,000,000 1.375% Bond due January 11, 2030 Daimler Finance North America LLC - USD 750,000,000 3.450% Bond due January 06, 2027 DAIG 1.000 11/11/25 MTN DAIG 1.500 02/09/27 MTN DAIG 1.500 07/03/29 MTN DAIG 1.875 07/08/24 MTN DAIG 0.850 11/14/25 MTN DAIG 1.375 05/11/28 MTN DAIG 1.600 10/01/25 MTN DAIG 1.000 11/15/27 MTN DAIG 2.125 07/03/37 MTN DAIG 2.000 02/27/31 MTN DAIG 1.500 03/09/26 MTN DAIG 1.375 06/26/26 MTN DAIG 0.140 07/03/24 FRN MTN DAIG 2.700 06/14/24 DAIG 2.700 06/14/24 DAIG 4.300 02/22/29 DAIG 4.300 02/22/29 DAIG 2.125 03/10/25 DAIG 2.125 03/10/25 DAIG 2.625 03/10/30 DAIG 2.625 03/10/30 DAIG 3.100 08/15/29 DAIG 3.750 02/22/28 DAIG 3.750 02/22/28 DAIG 3.100 08/15/29 DAIG 3.450 01/06/27 DAIG 0.375 11/08/26 MTN DAIG 1.125 08/08/34 MTN DAIG 1.125 11/06/31 MTN DAIG 0.750 02/08/30 MTN DAIG 2.625 04/07/25 MTN DAIG 2.270 11/12/24 MTN DAIG 0.625 05/06/27 MTN DAIG 1.625 11/11/24 MTN DAIG 3.100 04/21/25 MTN DAIG 2.375 05/22/30 MTN DAIG 2.000 08/22/26 MTN DAIG 0.750 09/10/30 MTN DAIG 1.650 09/22/25 DAIG 1.450 03/02/26 DAIG 2.450 03/02/31 DAIG 2.450 03/02/31 DAIG 0.750 03/11/33 MTN DAIG 1.450 03/02/26 DAIG 0.207 07/01/24 FRN MTN DAIG 3.300 09/27/24 MTN DAIG 09/17/24 MTN DAIG 3.250 08/01/24 DAIG 01/20/25 MTN MBG 3.500 08/03/25 MBG 3.500 08/03/25 MBG 3.300 05/19/25 MBG 3.300 05/19/25 MBG 3.250 08/01/24 MBG 8.500 01/18/31 MBG 2.550 08/26/24 MTN MBG 5.250 11/29/27 MBG 5.250 11/29/27 MBG 5.500 11/27/24 MBG 5.375 11/26/25 MBG 5.500 11/27/24 MBG 5.375 11/26/25 MBG 3.000 02/23/27 MTN MBG 4.750 01/19/26 MTN MBG 5.755 03/30/25 FRN MBG 4.800 03/30/26 MBG 4.950 03/30/25 MBG 5.755 03/30/25 FRN MBG 4.800 03/30/26 MBG 4.950 03/30/25 MBG 4.800 03/30/28 MBG 4.800 03/30/28 MBG 3.400 04/13/25 MTN MBG 4.650 06/05/26 MTN MBG 3.700 05/30/31 MTN MBG 3.500 05/30/26 MTN MBG 5.000 09/26/26 MTN MBG 4.500 10/06/26 MTN MBG 5.120 06/27/28 MBG 5.140 06/29/26 MBG 5.200 08/03/26 MBG 5.050 08/03/33 MBG 5.100 08/03/28 MBG 5.050 08/03/33 MBG 5.375 08/01/25 MBG 5.100 08/03/28 MBG 5.906 08/01/25 FRN MBG 5.375 08/01/25 MBG 5.200 08/03/26 MBG 5.906 08/01/25 FRN MBG 2.780 06/12/25 MBG 3.625 12/16/24 MBG 4.172 09/29/25 FRN MTN MBG 1.960 10/12/26 MTN MBG 2.108 10/12/29 MTN MBG 5.625 08/17/26 MTN MBG 4.850 11/16/26 MTN MBG 0.600 12/07/26 MTN MBG 0.520 10/06/26 MTN MBG 5.200 12/04/25 MTN MBG 4.676 11/20/25 FRN MTN MBG 5.210 11/27/26 MTN MBG 4.295 12/01/25 FRN MBG 3.250 06/20/25 MBG 2.900 11/29/24 MBG 2.980 06/20/24 MBG 1.000 01/18/27 MTN MBG 4.850 01/11/29 MBG 5.981 01/09/26 FRN MBG 4.850 01/11/29 MBG 4.900 01/09/26 MBG 5.000 01/11/34 MBG 5.981 01/09/26 FRN MBG 4.800 01/11/27 MBG 4.800 01/11/27 MBG 5.000 01/11/34 MBG 4.900 01/09/26 MBG 3.000 07/10/27 MTN MBG 3.250 01/10/32 MTN MBG 0.6 04/12/27 MBG 4.50 04/12/27 MBG 4.075 04/09/26

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