CORPORATES

CREDIT OPINION TRATON SE 16 March 2021 Update following Rating Affirmation

Update Summary TRATON SE’s (TRATON) Baa1 rating reflects (i) the group's strong market positions in Europe and South America in the heavy-duty truck segment, (ii) the expectation of profitability improvements driven by a sizable synergy potential between the group brands and restructuring measures at its MAN subsidiary, (iii) a solid liquidity profile, (iv) the RATINGS company's commitment to preserve a capital structure in line with the requirements for a TRATON SE solid investment grade rating, as well as (v) the ownership and assumed support from its Domicile main shareholder Aktiengesellschaft (VW, A3 negative), which is committed to Long Term Rating Baa1 remain a major shareholder going forward. Type LT Issuer Rating - Fgn Curr We expect the group's debt to EBITDA to be at around 2.0x on a stand-alone basis in 2021 Outlook Negative (i.e. excluding any impact from the pending acquisition of Corp. Please see the ratings section at the end of this report (Navistar, B2 negative)) even in a scenario of continued weakness in truck markets because for more information. The ratings and outlook shown of a continued focus on debt repayment and supported by stringent financial policies. If fully reflect information as of the publication date. debt funded, we expect the acquisition of Navistar to increase TRATON's leverage to slightly above 3x in 2021, before declining towards 2x in 2022.

Contacts Exhibit 1 Matthias Heck, CFA +49.69.70730.720 TRATON's leverage will be high for a Baa1 through 2022, at least, if Navistar was fully debt- VP-Sr Credit Officer financed [email protected] Debt/EBITDA (Moody's adjusted) Anke Rindermann +49.69.70730.788 TRATON (stand alone) TRATON + Navistar 3.5x Associate Managing Director [email protected] 3.0x

Lukas Brockmann +49.69.70730.724 2.5x Associate Analyst [email protected] 2.0x Moody's expectation for the Baa1: 1.5x - 2.0x » Contacts continued on last page 1.5x

1.0x CLIENT SERVICES Americas 1-212-553-1653 0.5x Asia Pacific 852-3551-3077 0.0x 2018 2019 2020 2021 2022

Japan 81-3-5408-4100 Estimates based on Moody's recovery assumption for the global truck market and assuming the acquisition of Navistar to be fully debt-financed EMEA 44-20-7772-5454 Source: Moody's Financial Metrics (MFM), Moody's Investors Service

The rating negatively incorporates the cyclical nature of truck market demand, which has weighed on operating performance in 2020 as indicated by weak order intake in Europe over the last few quarters and the group's focus on medium- and heavy-duty trucks and MOODY'S INVESTORS SERVICE CORPORATES

buses with no other diversifying business operations. We also note that the group's operating profitability is weaker than that of some key peers. However, we consider the group's clear objective of better integrating its MAN and Scania activities, which should help to gradually strengthen its operating margins towards the high single digits in percentage terms (i.e. EBITA margin as defined by Moody's).

The truck market downturn brought on by the coronavirus will cause a pronounced weakening in TRATON's credit metrics. In 2020, TRATON’s revenues declined 16% to €22.6 billion, and its operating profit margin dropped to only around 1%, compared with 7.4% in 2019 (both Moody’s adjusted EBITA). However, the company should be able to restore its metrics to appropriate levels by 2022 because the restructuring of MAN Truck & Bus has been agreed with workers unions recently, the industry is showing signs of recovery and TRATON has ample liquidity to bridge a prolonged downturn. Moody’s expectation is also supported by TRATON’s guidance of a sharp increase in unit sales, substantial increase in revenues and its forecast of 5.0% to 6.0% operating return on sales in 2021 (before restructuring and effects of the Navistar takeover). Credit strengths » Heavy- and Medium-Duty Truck brands with leading market positions in Europe and South America

» Sizeable synergy potential between the group brands and restructuring potential at MAN

» Conservative financial policy

» Long-term commitment from and strategic importance to its major shareholder VW

Credit challenges » Revenue concentration in the highly cyclical truck market

» Some execution risk and long lead times before full potential of identified synergies will materialize

» Weakening truck market in Europe

» Weakening credit metrics following the proposed acquisition of Navistar

Rating outlook The negative outlook reflects the impact that the pandemic and the cyclical downturn in the truck market have on TRATON's operating performance and credit metrics into 2022. After a drop of 21% in TRATON’s unit sales in 2020, we expect for 2021 industry unit sales and TRATON’s volumes to rebound and grow by about 10-15%. The expected acquisition of Navistar will increase TRATON’s debt/ EBITDA, and the negative outlook reflects the risk that TRATON might be unable to de-lever sustainably to below 2x debt/EBITDA (Moody’s adjusted), a level that Moody’s expects for its Baa1 rating.

Moreover, future demand for vehicles could be weaker than our current estimates, the already competitive environment in the truck sector could intensify further, and TRATON could encounter greater headwinds than currently anticipated in the recovery of its credit metrics.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

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Factors that could lead to an upgrade Although an upgrade within the next 24 months is not likely, Moody’s would consider upgrading TRATON's ratings in case of

» Improving the longer-term returns for the MAN and VWCO truck brands;

» EBITA margin of around 8% through the cycle;

» Positive Free Cash Flow on a sustainable basis;

» Debt/EBITDA (Moody's adjusted) consistently below 1.5x;

» Building a track record of conservative financial policy and a strong liquidity profile.

Factors that could lead to a downgrade TRATON's ratings could be downgraded in case of

» Inability to realize identified synergies within the group’s truck brands resulting in profitability below expectations;

» EBITA margin sustainably below 6%;

» Debt/EBITDA (Moody's adjusted) sustainably above 2.0x;

» Weakening liquidity profile;

» Negative Free Cash Flow generation.

Key indicators

TRATON Key Indicators

TRATON SE EUR Millions Dec-18 Dec-19 Dec-20 PF Dec-20* 12-18 Month Forward View Revenue 24,963 26,444 22,156 28,767 32,500 - 35,000 EBITA Margin % 5.4% 7.4% 1.6% 0.9% 5.5% - 7.5% Debt / EBITDA 2.5x 1.4x 2.4x 5.6x 2.0x - 3.0x RCF / Net Debt 49% 802% 58% 10% 30% - 40% FCF / Debt 1% 9% -1% -2% 2% - 10% EBITA / Interest Expense 7.5x 16.2x 3.4x 1.0x 6.0x - 10.0x

Note: All ratios are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations. *Pro forma for acquisition of Navistar, assuming 100% debt financing of the acquisition price; Financials for Navistar as per October 2020 converted to Euro at 1.13. 12-18 Months forward view includes Navistar (fully debt funded). Source: Moody’s Financial Metrics™

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Profile Headquartered in Munich, Germany, TRATON is one of the world’s largest manufacturer of medium- and heavy-duty trucks and buses sold under its strong brands Scania, MAN and VWCO. Moreover, TRATON offers customer financing solutions through its Scania financial services business.

During the year 2020, TRATON's Industrial business (excl. financial services) generated revenues of €22.2 billion and a company- adjusted operating profit of €135 million. TRATON is listed on the Frankfurt and Stockholm stock exchange since its IPO in June 2019, with Volkswagen AG remaining its major shareholder with around 89.7% of TRATON's shares.

Exhibit 3 Exhibit 4 Unit Sales by Geography Revenues by Brand Based on FY2020 unit sales Based on FY2020 revenue Rest of VWCO World Germany 6% 19% 17% South America (ex Brazil) 4% Scania MAN 51% 43%

Brazil 21% EU27+3 (ex Germany) 39%

Source: Company information Source: Company information

Exhibit 5 Exhibit 6 Pro Forma Unit Sales by Geography (including Navistar) Pro Forma Revenues by Brand (including Navistar) Based on FY2020 unit sales Based on FY2020 industrial revenue North Germany VWCO America 12% 4% 20% Navistar brands 23% Scania 40%

EU27+3 (ex Rest of Germany) World 29% 20%

South America (ex Brazil) Brazil MAN 3% 16% 33% Navistar based on October 2020 data; Charge outs; other markets are allocated to Rest of Navistar based on October 2020 data converted to Euro at 1.13. Excludes Financial World Services Source: company information Source: Company information

Detailed credit considerations Global Champion Strategy to offer growth potential and improve regional diversification As a part of its so-called Global Champion Strategy, TRATON strives to become a global champion by leveraging the scale and global reach of its strong brands and its strategic alliances to enable growth and achieve best-in-class profitability. At the core of its strategy are TRATON’s leading brands Scania, MAN and VWCO and the aim to increase cooperation between those brands in order to generate greater economies of scale and unlock the synergy potential. Furthermore, TRATON has entered into several alliances in the past, partially in the form of at-equity ownership , as well as via strategic partnerships as in the case of the strategic alliance with

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Hino. Last year, TRATON agreed for a full take over of Navistar, substantially broadening its footprint in the important North American market.

Exhibit 7 Adjusted Operating Profit Margin Across Brands

2018 2019 2020 12%

10%

8%

6% 10.8% 9.3% 4% 7.0% 5.9% 6.5% 2% 5.0% 0.1% 3.3% 2.0% 2.5% 0%

-2% -1.2% -5.7% -4%

-6% TRATON Group (IB) Scania MAN VWCO

Note: Based on segment return on sales in % for Industrial Business (excl. Financial Services) Source: TRATON FY2020 annual report

TRATON intends to work together with its alliance partners and has established procurement joint ventures in the North America and APAC regions, supply partners with powertrain technologies and pursues certain joint R&D projects, for instance in the field of e-mobility. Through increased collaboration between its group brands and with its alliance partners, TRATON intends to improve operating profit margins on the group level (0.1% in 2020 for Industrial Business, adjusted), targeting to reach an operating margin at Group level of 9% through the cycle. After the trough in 2020, TRATON expects to improve its margin to 5% to 6%.

Successful execution of identified synergy potential and restructuring at MAN Truck & Bus are key to improved profitability TRATON’s profitability is currently low relative to its higher rated peers. TRATON’s profitability in the future will be significantly impacted by its ability to realize the identified synergies among its operating units. TRATON’s track record in realizing synergies has been limited over the first four years of its history. However, the Group has identified significant further synergy potential among its operating units and is targeting long-term net cost savings of approximately €0.7 billion, the vast majority of it is expected to be realized from the second half of 2021 onwards. Given the long life cycles of trucks, Moody’s believes that it will take up to ten years until the full potential of synergies can be realized. The majority of synergies will come from the introduction of the new common base engine (CBE) across TRATON’s brands and its alliance partners.

In January 2021, TRATON's subsidiary MAN Trucks & Bus also agreed a sizeable restructuring programme, which is designed to improve earnings by up to €1.7 billion annually. The program comprises of reductions of €700 million in material costs and up to €550 million overhead and personnel expenses as well as around €450 million through additional sales efforts. We expect this programme to be a major driver by of improving operating performance of TRATON by 2023 but note that its full realization remains subject to execution risks.

Volkswagen as major shareholder is supportive to TRATON`s ratings After the floating of 10.3% of TRATON’s shares on the stock market during TRATON’s IPO in June 2019, VW remains the major shareholder with 89.7% of shares and voting rights. Moody’s assumes that VW will remain the dominant shareholder with a stake of clearly above 50%, which is positively reflected in TRATON’s rating.

Conservative financial policy and solid liquidity profile TRATON’s commitment to a conservative financial policy is being challenged by the proposed acquisition of Navistar. Nonetheless, its excellent liquidity profile is supporting the company’s solid investment grade rating. We continue to assume that the group’s management remains committed to maintain/regain a net cash position for its industrial business and continue to deleverage by repaying its industrial debt. TRATON’s envisaged dividend policy with a targeted pay-out ratio of 30% to 40% of net income is well in

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line with industry peers. We note, however, that the proposed dividend payment of €125 million for 2020 is more favourable at a time when the company recorded a net loss of €124 million.

Acquisition of Navistar is strategically sound but will likely re-lever TRATON On November 10, 2020, TRATON provided details on the binding agreement to acquire Navistar International Corp. (Navistar, B2 stable), the fourth largest truckmaker in the US. On March 2nd, 2021, Navistar's shareholders approved the transaction, which remains subject to regulatory approvals and the satisfaction of customary closing conditions. TRATON and Navistar continue to expect that the transaction will be completed in mid-2021.

Moody’s considers the transaction, which is expected to close by mid-2021, as strategically sound. However, the purchase price of $3.7 billion (equity value for 83.2% of shares not yet owned) plus assumed debt of around $5 billion (Moody’s adjusted, as of end October 2020) will likely result in a re-leveraging of TRATON’s balance sheet. TRATON has not publicly communicated its refinancing plan. However, if fully debt funded, we expect TRATON’s debt / EBITDA (Moody’s adjusted) to slightly exceed 3x in 2021 before declining towards 2x in 2022.

Exposure to the cyclical truck market; signs of recovery in 2021 While we acknowledge that around 20% of the group’s industrial revenue is generated through its Services and Parts business which is typically less cyclical, TRATON’s substantial exposure to the highly competitive and cyclical market for medium- and heavy-duty trucks is a constraining factor to the rating. The lower order intakes observed for TRATON’s industrial business over the last quarters, with a 5% decline for the year 2020, after a 7% decline in 2019, is a clear indicator for weakening demand. However, the 21% increase of order intake in the second half of 2020 already indicates some recovery versus a trough in the first half of 2020, which was massively hit by the pandemic. Moreover, the recently launched new Scania truck generation (end of 2019) and its strongly growing VWCO business in Brazil should somewhat offset the impact of the anticipated fading truck demand in the European markets.

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ESG considerations We view environmental risk as falling broadly into two categories: (1) the consequences of regulatory or policy initiatives that seek to reduce or prevent environmental trends or hazards or perceived trends or hazards; and (2) the adverse effects of direct environmental trends and hazards, such as pollution, drought, severe natural and human-caused disasters, and climate change. Exposure to environmental risks is typically moderate for manufacturing companies. There is less certainty that these risks develop in a way that is material to ratings for most issuers in the sector, or there is a longer runway for issuers to adjust business models and balance sheets to substantially mitigate the overall credit impact. Issuers in the sector are mostly exposed to tougher regulation on air and water quality and emissions standards, which can weigh on costs.

In contrast to the strict CO2 emission targets for cars, there have not been any specific CO2 targets for heavy-duty vehicles (trucks, bus and coaches) until recently in Europe. In February 2019, representatives of the European Commission, the European Parliament and the European Council reached a political agreement on a new regulation targeting a 15% reduction in CO2 emissions by trucks above 16 tons by 2025 and a 30% reduction by 2030, each compared to the benchmark period of July 1, 2019 to June 30, 2020. This proposal received final approval from the EU member states in June 2019. To be compliant, TRATON will be required to invest substantial amounts into new engine technologies including alternative drive systems and vehicles powered by alternative fuels.

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The truck manufacturing industry is considered as one of the sectors most affected by the shock given its sensitivity to market demand and sentiment. The vulnerability of TRATON’s products to a potentially steep downturn in demand heightens the importance of a healthy liquidity profile.

Concerning governance risk, TRATON has been stock market listed since 2019 and has established an independent, state of the art organizational and board structures. As part of the , it has to adhere to the strict governance rules of the Group which was supervised by the US regulator following the diesel issue. In terms of compliance risks, we note that TRATON's subsidiary Scania discovered corruption issues in India during 2013-2017. We do not expect a material financial risk related to these issues and understand that TRATON implemented stricter compliance standards to minimize governance risks going forward. Liquidity analysis TRATON's liquidity position is excellent and allows it to fund sizable cash requirements that might arise under a potentially extended downturn in the global truck market as a result of the coronavirus pandemic. As of 31 December 2020, the group's sources of cash included cash and marketable securities of around €3.8 billion as well as an undrawn €3.75 billion revolving credit facility (maturing in 2023, with two one-year extension options). In March 2021, TRATON also signed a €700 million Schuldscheindarlehen. Together with FFO estimated at around €2.8 billion over the next twelve months, total cash sources amount to slightly more than €11 billion.

These sources cover of uses totaling to nearly €11 billion. Large upcoming debt repayments (around €6 billion) are due to a significant degree from group's financial services segment included in our liquidity analysis. Moreover, TRATON repaid in March €1 billion of shareholder loans to Volkswagen. Further cash uses relate to working cash of around €1 billion, capex of around €1.5 billion, potential working capital outflows of around €1 billion as well as the proposed dividend of €125 million.

For the proposed acquisition of Navistar, TRATON has secured a fully committed financing of about $3.7 billion, which covers the equity purchase price. As a result, the closing of the transaction should not negatively impact TRATON’s liquidity profile.

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Appendix

Exhibit 8 Peer comparison TRATON SE PACCAR Inc AB Volvo CNH Industrial N.V. Baa1 Negative A1 Stable A3 Stable Baa3 Stable

FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE LTM (in US millions) Dec-18 Dec-19 Dec-20 Dec-18 Dec-19 Dec-20 Dec-18 Dec-19 Dec-20 Dec-18 Dec-19 Jun-20 Revenue $29,479 $29,604 $25,288 $22,139 $24,120 $17,154 $43,574 $44,275 $35,570 $27,831 $26,149 $23,218 EBITDA $3,788 $4,388 $2,668 $2,831 $3,092 $1,656 $5,715 $5,978 $4,220 $2,736 $2,392 $1,333 Total Debt $9,179 $6,061 $6,785 $582 $539 $607 $4,505 $4,680 $6,270 $6,948 $7,284 $8,894 Cash & Cash Equiv. $3,372 $5,647 $4,583 $4,300 $5,169 $4,834 $4,952 $6,161 $9,981 $4,553 $4,407 $4,638 EBITA Margin 5% 7% 2% 11% 11% 8% 10% 10% 8% 6% 5% 2% EBITA / Int. Exp. 7.5x 16.2x 3.4x 148.9x 258.8x 145.4x 19.7x 23.9x 17.4x 3.2x 3.5x 1.0x Debt / EBITDA 2.5x 1.4x 2.4x 0.2x 0.2x 0.4x 0.8x 0.8x 1.3x 2.5x 3.0x 6.7x RCF / Net Debt 49% 802% 58% -47% -36% -6% -922% -180% -101% 89% 69% 28% FCF / Debt 1% 9% -2% 267% 169% -69% 44% 34% 27% 6% -2% -6%

All ratios are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations. Source: Moody’s Financial Metrics™

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Rating methodology and scorecard factors The principal methodology used for this rating was the Global Manufacturing Companies rating methodology published in March 2020. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology. The historic scorecard-indicated outcome as of December 2020 is Baa2 and is one notch below the actual Baa1 rating assigned. On a stand-alone basis, the 12-18 month forward-view would improve to Baa1, in line with the actual rating assigned. Including the acquisition of Navistar, and assuming full debt financing, the 12-18 month forward view remains at Baa2.

The actual rating assigned reflects (1) the 12-18 months forward view on a standalone basis, and (2) the expected improvement of TRATON's metrics including the debt-funded acquisition of Navistar as of year-end 2022, i.e., shortly after our 12-18 months forward view.

Exhibit 9 Rating factors TRATON SE

Current Moody's 12-18 Month Forward View Manufacturing Industry Scorecard [1][2] FY 12/31/2020 As of 3/15/2021 [3] Factor 1 : Scale (20%) Measure Score Measure Score a) Revenue (USD Billion) $25.0 A $38 - $40 Aa Factor 2 : Business Profile (25%) a) Business Profile Baa Baa Baa Baa Factor 3 : Profitability and Efficiency (5%) a) EBITA Margin 2% Caa 5.5% - 7.5% B Factor 4 : Leverage and Coverage (35%) a) Debt / EBITDA 2.3x Baa 2x - 3x Baa b) Retained Cash Flow / Net Debt 58% Aa 30% - 40% A c) Free Cash Flow / Debt -2% Caa 2% - 10% Ba d) EBITA / Interest Expense 3.4x B 6x - 10x Baa Factor 5 : Financial Policy (15%) a) Financial Policy A A A A Rating: a) Scorecard-Indicated Outcome Baa2 Baa2 b) Actual Rating Assigned Baa1

[1] All ratios are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations. [2] As of 12/31/2020 [3] This represents Moody's forward view, not the view of the issuer. The forward-view includes the acquisiton of Navistar. Source: Moody’s Financial Metrics™

Ratings

Exhibit 10 Category Moody's Rating TRATON SE Outlook Negative Issuer Rating Baa1 Senior Unsecured MTN (P)Baa1 TRATON FINANCE LUXEMBOURG S.A. Outlook Negative Bkd Sr Unsec MTN (P)Baa1 Source: Moody's Investors Service

9 16 March 2021 TRATON SE: Update following Rating Affirmation MOODY'S INVESTORS SERVICE CORPORATES

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Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively. MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

REPORT NUMBER 1270827

10 16 March 2021 TRATON SE: Update following Rating Affirmation MOODY'S INVESTORS SERVICE CORPORATES

Contacts CLIENT SERVICES

Anke Rindermann +49.69.70730.788 Americas 1-212-553-1653 Associate Managing Asia Pacific 852-3551-3077 Director [email protected] Japan 81-3-5408-4100 EMEA 44-20-7772-5454

11 16 March 2021 TRATON SE: Update following Rating Affirmation