Tesla Receives Blue Chip Status After Moody’s Upgrade

This is a huge milestone for Tesla (TSLA): the electric vehicle maker is now blue chip.

Moody’s Investor Research has upgraded the electric car maker’s credit rating to Baa3, the first rung of its investment ladder for corporate debt, with Tesla’s credit outlook changed to stable. Moody’s previously classified Tesla as Ba1, which is the agency’s highest rating for high-yielding corporate or junk debt.

In its report, Moody’s wrote that the rating upgrade “reflects Moody’s expectation that Tesla will remain one of the leading manufacturers of battery electric vehicles with an expanding global footprint and very strong profitability.”

Moody’s expects Tesla to deliver about 1.8 million vehicles worldwide in 2023, up 34% from 2022, and cites its “significant investment” in new car and battery manufacturing, which is enabling “a dramatic increase in » global supply. Moody’s notes that the expansion of the Cybertruck product line this year is a positive step.

Moody’s also said Tesla’s increased focus on manufacturing process efficiency and financial prudence were factors in the upgrade.

Moody’s expects Tesla to maintain industry-leading EBITA margins into its mid-high teens compared to its peers.. Other positive aspects: The ratings agency also expects the company to cut spending on its next-generation vehicles by 50%, boosting profitability and countering price drops for its high-volume Model 3 and Model Y vehicles.

Moody’s upgrade of Tesla’s rating to investment grade followed a similar move by S&P Global Ratings back in October last year. In upgrading Tesla to ‘BBB’, which is considered an investment grade rating, S&P analysts wrote at the time, “We believe Tesla continues to demonstrate leadership in the electric vehicle (EV) market with strong operating efficiencies that support strong EBITDA margins and sustained positive earnings. operating cash flow (FOCF), albeit with high capital costs.”

Thanks to two rating agencies that have given Tesla investment-grade debt ratings, Tesla is now considered a blue-chip company in terms of corporate debt. Typically, this means that conservative investors, such as pension funds and other institutional investors, will view Tesla’s debt as an attractive investment, making Tesla’s borrowing pool deeper and cheaper. There are also ETFs and other passive and actively managed funds that only invest in blue chip corporate debt.

The story goes on

An interesting question: why did it take Moody’s so long to upgrade Tesla to investment grade? Dont clear. Tesla is now in the top 10 US public companies by market capitalization. It has also been profitable for many consecutive quarters, has very little debt ($1.597 billion at the end of Q4), a large money supply of $22.2 billion at the end of last quarter, and industry-leading operating margins.

Yahoo Finance reached out to Moody’s for further clarification, but a spokesperson was not immediately available for comment.

—

Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and beyond Instagram.

Read the latest financial and business news from Yahoo Finance

Download the Yahoo Finance app for Apple or android

Follow Yahoo Finance at Twitter, facebook, Instagram, flipboard, LinkedInAnd YouTube