Moody's Delivers Good News to Tesla

The credit-rating company Moody's Investors Service has just raised its rating on the manufacturer of electric vehicles.

It's a nice bit of revenge for Tesla and Elon Musk. 

Within a few months of each other, two big names on Wall Street have recognized that the electric-vehicle market leader is guiding the automotive industry into the future.

Founded in 2003, Tesla  (TSLA) - Get Free Report went through a number of stages and verged on bankruptcy on several occasions. The last time was in 2018, when the Austin group ran into every possible roadblock to producing the Model 3 sedan, the vehicle it needed to target average car buyers.

The company was burning cash and posting losses. Few bet that it would survive.

"I put in my last money, even though I thought we would still fail," Musk in November 2020 said about the 2008 financial crisis that forced General Motors and Chrysler to file for Chapter 11 bankruptcy. 

"But, it was either that or certain death for Tesla. Extremely difficult to raise money for an electric car startup (considered super quirky back then), while stalwarts like GM & Chrysler were going bankrupt."

"How close was Tesla from bankruptcy when bringing the Model 3 to mass production?" a Twitter user asked him back then.

"Closest we got was about a month. The Model 3 ramp was extreme stress & pain for a long time — from mid 2017 to mid 2019. Production & logistics hell," the billionaire responded.

Moody's Lifts Tesla to Investment Grade

Since then Tesla has become the center of the automotive industry. Almost all car manufacturers, from upstarts to traditional carmakers, compare themselves to Elon Musk's group. They all want to dethrone Tesla, whose electric vehicles form the heart of the sector. 

EVs are now seen as the future of the auto industry and Tesla is currently the world leader in the sector, with production reaching 1.37 million units last year. The carmaker aims to produce 20 million units a year by 2030.

Last year Tesla even made more money than Ford  (F) - Get Free Report and General Motors  (GM) - Get Free Report combined. The electric vehicle maker posted net income of $12.6 billion for last year. GM, for its part, posted net income of $9.9 billion on revenue of $157 billion for the year. Ford was in the red in 2022, posting a net loss of $2 billion on revenue of $158.1 billion.

After long treating Tesla like a company that might not pay its debts, S&P and Moody's have changed their minds and are now showing some love to Musk's company.

Moody's has just raised Tesla's rating by one notch to Baa3, which propels it to investment-grade status. This means that institutional investors can own Tesla's bonds without fearing that the EV leader might not pay its debts.

"The rating action reflects Moody's expectation that Tesla will remain one of the foremost manufacturers of battery electric vehicles with an expanding global presence and very high profitability," Moody's said.

The credit-rating company added that it "anticipates that liquidity will remain very good, underpinned by a very sizeable and growing balance of cash and investments."

First Trillionaire Company with Junk Rating

Moody's also highlighted the expansion of Tesla's vehicle offerings. 

Later this year the automaker will start producing the Cybertruck, its very first pickup truck, with a full order book. Tesla also said on March 1 that it would build a fifth passenger-vehicle-manufacturing plant, in Mexico. This factory would join the current facilities in Fremont, Calif., Austin, Shanghai and Berlin. 

The same day, Tesla also unveiled a new vehicle-development platform that would enable it to cut costs by 50%. The company has kept investors and fans in the dark, however, about which models will be developed on this platform.

"The development of a next generation vehicle at a targeted 50% reduction in cost holds the prospect for a meaningful decrease in the reliance on the earnings contribution of the Model 3 and Model Y," Moody's said.

In October, S&P Global Ratings had lifted Tesla's rating to investment grade.

The decision of the two credit raters is important because Tesla had held a dubious distinction: In October 2021 it became the only company bearing a junk rating to have crossed $1 trillion in market capitalization.

Tesla's market value plunged last year but has rebounded this year. Its market capitalization was above $600 billion at last check, making it the world's eighth largest company, according to companiesmarketcap.com.