S&P Downgrades Nissan Outlook to “Negative”

S&P Global Ratings has revised its long-term outlook for Nissan Motor Co. to negative after predicting at least two more years of sliding profits for the carmaker.

S&P affirms its current ratings of A- and A-2 for Nissan’s long-term and short-term credit. But it says the carmaker faces strong pressure because of a tough business environment, an aging product lineup and climbing r&d costs over the next 2-3 years.

Last week Nissan posted its worst net profit—319 billion yen ($2.9 billion)—in a decade. The company also predicted its earnings for the current fiscal year drop 60% to only 230 billion yen ($2.1 billion)—about half what analysts were expecting.

S&P says there is a more than 33% chance that Nissan’s recovery will take longer than two years. The services notes that Nissan will need at least that long just to freshen its products.

A further downgrade could come if Nissan is unable to raise its earnings before interest, taxes, depreciation and amortization to nearly 6% in fiscal 2020, S&P adds. That could happen if Nissan’s sales slump in the U.S. and China worsens more than expected, the company’s new-model launches are delayed or the U.S. imposes significantly tougher tariffs on imported cars.

The rating service also is skeptical of Nissan, its Mitsubishi Motors affiliate and longtime alliance partner Renault SA will quickly revamp the terms of their alliance in a way that would accelerate Nissan’s recovery. S&P cautions that revised management protocols or hikes in cross-ownership within the alliance could put even more downward pressure on Nissan’s ratings.