Tesla is finally leaving the junk-rated world after Moody’s update

(Bloomberg) — Elon Musk-loving stock traders are notoriously bullish on Tesla Inc., the world’s eighth most valuable company. Now credit rating providers are playing catch-up with the valuation of the blue-chip automaker.

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Moody’s Investors Service on Monday became the second credit ratings firm to give Tesla investment grade status, raising the Austin-based company’s credit rating by one notch to Baa3 on Monday. 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 strengthens its global presence,” RenĂ© Lipsch, senior credit officer at Moody’s, wrote in a statement.

The credit rating also mentioned an expansion of the automaker’s offering, including early production of the Cybertruck scheduled for later this year, its regional manufacturing facilities, and increased focus on efficiency and financial leverage well below once after Tesla paid off about $10 billion in debt. in the last three years.

An email sent to the company asking for comment was not returned.

Many investors and analysts already viewed Tesla as a blue-chip company. Earlier this year, he received a $5 billion revolving line of credit, a sign that he is moving closer to investment grade status. The electric vehicle company has small outstanding debt and its five-year default swaps are already trading at par with highly rated borrowers, according to data compiled by Bloomberg.

The rise of Moody’s has both symbolic and practical implications. Companies that move from junk to investment grade typically benefit from cheaper funding, attracting a wider range of investors. And the traditionally high level of certification from at least two agencies is enough to officially be considered blue-chip among rating-sensitive investors.

“This is a historic milestone for Tesla,” said Joel Lewington, a credit analyst at Bloomberg Intelligence. “We continue to believe that the company’s rating cycle is warranted, potentially narrowing the credit risk outlook for Volkswagen.”

Tesla shares, which fell sharply in 2022, rose 1.7% on Monday to close at $183.3, and are up nearly 50% this year. The company became the first junk-rated company to surpass $1 trillion in market value in October 2021. The electric car maker is the 8th largest company in the world by market capitalization, and its valuation has helped Musk become one of the richest people in the world.

Tesla delivered more than 1.3 million vehicles worldwide in 2023 and will report first quarter numbers in early April. It has also paid off its debt by remaining the world’s leading electric vehicle manufacturer and recently announced that its next car plant will be in Mexico. Low financial leverage and best-in-class margins explain why the ratings companies have been steadily raising Tesla’s rating, BI’s Lewington said in an interview in October.

(Updates history everywhere.)

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