Tesla moves closer to blue chip status thanks to Moody’s rating upgrade
Moody’s Investors Service Inc.’s decision to raise Tesla Inc.’s credit rating to borderline investment grade bolsters expectations that the famed electric vehicle maker will achieve blue chip status early in the l ‘next year.
The agency boosted Tesla two notches to the highest junk rating of Ba1 on Monday, citing improved profitability and company-wide outlook. Bloomberg Intelligence credit analyst Joel Levington predicts that Tesla will now enter the big leagues of blue-chip issuers within 12 to 18 months.
“Maintaining current performance may be sufficient for additional Tesla upgrades at Moody’s,” he wrote in a note Tuesday.
Levington estimates that Tesla currently has $8.2 billion in outstanding debt.
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“Moody’s expects Tesla’s financial policy to be prudent,” the credit assessor wrote in a statement Monday. “Financial leverage has steadily declined as earnings have accelerated and Tesla has paid off approximately $5 billion in debt over the past two years.”
He estimates that leverage, a key measure of debt to earnings, fell below 1x at the end of 2021 and will remain at that level in 2022.
Companies that move from junk to investment grade generally benefit from cheaper funding by attracting a larger pool of investors. There could be another $169 billion wave of these rising stars by 2023, according to Bloomberg Intelligence.
Moody’s also sees potential for another ratings boost even as competition in the industry intensifies.
“The ratings could be improved if Tesla successfully expands its global footprint, maintains a strong competitive global presence as other automakers offer a growing number of battery-electric models, and improves its product lineup,” the agency wrote. .
Tesla reports earnings on Wednesday after the market close. Its stock fell 2.9% in general market volatility on Tuesday.