Moody's Japan K.K. on May 23 revised Panasonic Corp.'s outlook to negative and affirmed the Japanese consumer electronics company's A3 long-term issuer rating and senior unsecured bond ratings.
The rating agency said the negative outlook reflects the increasing uncertainty over whether the company can generate enough earnings to restore its operating margins over the coming years, given the delays in turning its automotive business profitable.
Moody's noted that Panasonic has invested heavily in its automotive business over the past three years, spending approximately ¥200 billion in its Gigafactory in the U.S. with Silicon Valley-based electric carmaker Tesla Inc. It was reported in April that Tesla and Panasonic are suspending further investments in their Gigafactory 1 in Nevada while they study market demand.
Moody's said Panasonic's battery business remained loss-making in both fiscal years 2017 and 2018. It added that Panasonic now projects another ¥15 billion loss for its newly established automotive segment in fiscal 2019. Moody's said it previously expected Panasonic's automotive strategy as a positive growth factor because it would allow the company to leverage its technological advantages in the growing auto batteries and auto parts business.
The rating agency also commented on Panasonic's collaboration with Japanese carmaker Toyota Motor Corp. on car batteries. It said the companies' planned joint venture, which is scheduled to be established by the end of 2020, would reduce Panasonic's future capital requirements in this business.
Moody's said it remains concerned whether other businesses in the automotive segment will turn profitable as it forecasts lower-than-expected production volume would weigh the automotive cylindrical batteries business in fiscal 2019.
The agency said an upgrade on Panasonic's ratings is unlikely, given the negative outlook. But the outlook could return to stable if Panasonic maintains its EBITA margin in the upper 5% range by further improving its earnings, if the company lowers debt/EBITDA to below 2.0x on a sustained basis, or if it significantly improves the profit contribution from its automotive business, Moody's said.
While Panasonic's diversified business portfolio with a wide range of products and a broad customer base supports its A3 rating, a downgrade could be seen if its EBITA margin falls below 5%, or if debt/EBITDA exceeds 2.25x on a sustained basis, Moody's said.