Moody’s Upgrades Tesla
Moodys upgraded Tesla’s credit rating today, on Tuesday March 21st, to a investment grade level, which is a significant achievement for the electric vehicle (EV) maker. This is the first time that Moody’s has placed Tesla in this category, elevating the company from a high-yield corporate debt or “junk” debt rating. This move follows a similar rating upgrade by S&P Global Ratings back in October 2022, indicating that Tesla has established itself as a blue chip company from a corporate debt perspective.
The Moody’s report highlighted Tesla’s impressive global presence, profitability, and production capabilities. Moody’s predicts that Tesla will deliver around 1.8 million vehicles globally in 2023, representing a 34% increase compared to 2022. This projection is supported by the EV maker’s substantial investments in new vehicle and battery production, which enable the company to increase its global deliveries significantly.
Moody’s also notes that Tesla’s heightened focus on manufacturing efficiencies and financial prudence are contributing factors to its credit upgrade. The rating agency expects Tesla to maintain an industry-leading EBITA margin in the mid-high teens compared to its peers, while also reducing costs by 50% for its next-generation vehicles.
The Moody’s credit rating upgrade is significant because it could attract conservative investors, including pension funds and other institutional investors, who typically favor investment-grade corporate debt. Additionally, it may lead to a deeper borrowing pool for Tesla, resulting in cheaper borrowing costs. Furthermore, there are also ETFs and other passive and actively managed funds that only invest in blue-chip corporate debt, which could provide additional investment opportunities for Tesla.
Despite the positive news, it’s worth asking why it took Moody’s so long to upgrade Tesla’s credit rating. The company has been profitable for many quarters now consecutively, has very little debt, and has a large cash hoard. (linksmagazine.com) It is currently one of the top 10 public companies in the U.S. by market cap, indicating that Tesla is a solid investment. However, Moody’s upgrade demonstrates that the EV maker has taken significant steps in improving its financial standing and reinforcing its position as a leader in the EV market.
Moody’s upgrade of Tesla’s credit rating to investment grade is a significant milestone for the EV maker, making it more attractive to conservative investors and expanding its borrowing pool. This news also confirms Tesla’s position as a blue chip company from a corporate debt perspective, cementing its reputation as a leader in the EV market.
