Moody’s Investors Service Inc’s move to upgrade Tesla Inc’s credit rating to investment-grade peak is fueling hopes that the famed electric vehicle maker will achieve blue-chip status early next year.
Citing improved profitability and business-scale prospects, the agency on Monday raised Tesla two places to the highest junk rating of Ba1. Bloomberg Intelligence credit analyst Joel Levington projects Tesla will now enter the big league of highly rated issuers within 12 to 18 months.
“Maintenance of current performance may be sufficient for additional Tesla upgrades at Moody’s,” he wrote in a note on Tuesday.
Levington estimates that Tesla currently owes $8.2 billion in debt.
“Moody’s expects Tesla’s financial policy to be prudent,” the credit assessor wrote in a Monday statement. “Financial leverage declined steadily as earnings accelerated and Tesla paid down nearly $5 billion in debt over the past two years.”
It estimates that leverage, a key measure of debt to income, fell below 1 bar in late 2021, and will remain at that level in 2022.
Companies moving from junk to investment grade usually benefit from cheap financing by attracting a deep pool of investors. According to Bloomberg Intelligence, there could be another $169 billion wave of such rising stars by 2023.
Despite increased competition in the industry, Moody’s sees the possibility of another rating increase.
“If Tesla successfully expands its global footprint, offers other automakers an increasing number of battery electric models, and improves its product breadth, the rating could be upgraded,” the agency wrote. ”
Tesla reported earnings after the market closed on Wednesday. Its stock fell as much as 2.9% on Tuesday in broader market volatility.
This story has been published without modification in text from a wire agency feed. Only the title has been changed.
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