NEW YORK – Elon Musk-loving stock traders are famously bullish on Tesla, the eighth-most valued company in the world. Now, credit rating providers, playing catch-up, are giving heft to the carmaker’s blue-chip valuation.
Moody’s Investors Service on Monday became the second credit rating firm to endow Tesla with investment-grade status, upgrading the company’s credit score by one notch to Baa3. This follows a similar move by S&P Global Ratings in October.
“Tesla will maintain its position as one of the leading manufacturers of battery-electric vehicles as the company further solidifies its global footprint,” Mr Rene Lipsch, senior credit officer at Moody’s, said in a statement.
The credit grader also cited the carmaker’s expanding product offering, including early production of the Cybertruck slated for later in 2023; its regional production facilities and heightened focus on efficiency; and low financial leverage ratio after Tesla repaid about US$10 billion (S$13.4 billion) of debt over the last three years.
Tesla was already being treated like a blue-chip company by many investors and analysts. It secured a US$5 billion revolving credit facility earlier in 2023, a sign that it was nearing investment-grade status.
The electric vehicle company has little outstanding debt, and its five-year credit default swaps are already trading in line with high-grade borrowers, according to data compiled by Bloomberg.
Moody’s uplift has both symbolic and practical value. Companies that rise from junk to investment grade typically benefit from cheaper financing by attracting a deeper pool of investors. Traditionally, a high-grade credential from at least two agencies is enough to be formally considered a blue-chip credit among rating-sensitive investors.
“It is a historic event for Tesla,” said Bloomberg Intelligence credit analyst Joel Levington. “We continue to believe the rating upgrade cycle for the company has legs, potentially narrowing views of credit risk against Volkswagen.”
Tesla’s stock, which plummeted in 2022, rose 1.7 per cent on Monday to close at US$183.3 and is up nearly 50 per cent so far in 2023.
The company became the first junk-rated company to have a market value of more than US$1 trillion in October 2021. It is the eighth-largest company in the world by market capitalisation, and its valuation helped turn Mr Musk into one of the world’s richest people.
Tesla delivered more than 1.3 million cars globally in 2022 and will report first-quarter figures in early April. It remains the world’s leading maker of electric cars, and recently announced that its next plant will be in Mexico.
The low financial leverage and best-in-class margins explain why rating companies have steadily ratcheted up Tesla’s grade, Mr Levington said in October. BLOOMBERG
