Source: Wall Street News
Author: Bu Shuqing
With low financial leverage and first-class profit margins, Tesla received investment grade ratings from two major rating agencies, Moody's and S&P.
After S&P, Moody's became the second giver$Tesla (TSLA.US)$A credit rating agency for investment grade ratings.
On Monday evening EST,Moody's raised Tesla's credit score from Ba1 (the highest level of junk debt) to Baa3 (the lowest level of investment grade debt), and the outlook is “stable.”
“As the company further strengthens its global business, Tesla will maintain its position as one of the leading manufacturers of pure electric vehicles,” Moody's senior credit officer Rene Lipsch said in a statement.
Moody's also mentioned Tesla's expanding product offering (including Cybertruck scheduled to launch production later this year), its production sites in different regions, and the company's strong focus on efficiency and financial leverage.
In October of last year, after Tesla released delivery data for the third quarter, S&P Global raised its rating to the investment level.
S&P Credit analysts wrote in the report at the time: “We are now more optimistic about Tesla's credit situation because it continues to show a leading market position in the (electric vehicle) field. Stable manufacturing efficiency supports strong Ebitda profit margins and continued positive free operating cash flow.”
Bloomberg Intelligence credit analyst Joel Levington said in October last year that lower financial leverage and first-class profit margins could explain why rating companies have steadily raised Tesla's ratings.
Tesla's performance last year was truly impressive. It produced more than 1.3 million electric vehicles and had an operating profit margin of about 17%, ranking among many car companies, more than double the operating profit margin of Toyota Motor Corporation of about 8% in 2022.
Although Tesla's stock price plummeted last year, it has risen nearly 50% so far this year. As of now, Tesla is the eighth-largest company by market capitalization in the world.
Also, in the past three years, Tesla has repaid about $10 billion in debt, after which its financial leverage fell to a very low level.
For Tesla, Moody's move could be a landmark. Traditionally, rating-sensitive investors think,When a stock is highly rated by at least two institutions, it's enough to be officially considered a blue-chip stock.
Moving from “garbage” to “blue chips” means that Tesla will be able to attract more investors and significantly reduce its financing costs.
In response, Levington said:”This is a historic event for Tesla. We still believe the company has the foundation for a rating upgrade cycle. This may narrow the credit risk gap between Tesla and Volkswagen in people's eyes.”
In fact, before Moody's upgraded its ratings, Tesla was already viewed by many investors and analysts as a blue-chip company.
Earlier this year, Tesla received a $5 billion revolving credit facility (revolving credit facility), which means it is close to investment-grade status. According to media data, Tesla has almost no outstanding debt, and its 5-year credit default swap (CDS) is already on par with high-rated borrowers.
Editor/Somer