Tesla, Inc. TSLA investors harbor a sense of disappointment with rating agencies granting junk status to the credit of their favorite company.
S&P currently rates Tesla at BB+, which is one step below investment grade. To Moody’s Corporation MCO, Tesla, despite upgrading two notches in January, is still at Ba1, the highest among the junk ratings. The agency has hinted that it will upgrade the company’s credit to investment grade early next year.
What happened: A Tesla influencer going through the @TeslaBoomerMama Twitter account shared a response she received from Moody’s to her communication expressing her opinion that the electric vehicle maker deserves a credit rating upgrade.
Moody’s Analyst Rene Lipsch clarified that the reasons for undesirable status are more qualitative than quantitative in nature. The company’s reliance on a narrow product line was cited as a reason for the not so positive outlook. He also reiterated his recommendations that an upgrade could be considered if Tesla successfully expands its global footprint, maintains a strong competitive global presence and improves its product lineup.
Among other criteria, Moody’s examines Tesla’s ability to maintain an EBITA margin of at least 7%, a consistent and prudent financial policy and good liquidity.
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Another Tesla influencer named David Lee tweeted @@TeslaBoomerMama’s tweet and said Moody’s claim that Tesla isn’t investment grade is ridiculous.
Responding to Tesla CEO Lee’s tweet Elon Musk said, “Moody’s is irrelevant.”
Moody’s is irrelevant
— Elon Musk (@elonmusk) September 3, 2022
Why a rating upgrade is important for Tesla: An investment grade is a prerequisite for institutional investors, who do not always invest in companies with an undesirable credit rating. This explains Tesla’s relatively smaller institutional ownership compared to big tech like Apple Inc. AAPL and Amazon, Inc. AMZN.
Rising buyer interest could give a boost to the stock slump, which hasn’t received much-needed lift from the company’s recent stock split.
Tesla stock closed Friday’s session at $270.21, down 2.51%, according to Benzinga Pro data.
Photo: created with an image of TED Talk on flickr