Tesla may have maintained profitability and growth while absolutely dominating the electric vehicle industry, but for Moody’s Corporation, the electric vehicle maker is still classified as “trash.” An explanation for this was recently shared online, although for CEO Elon Musk it doesn’t really matter what Moody’s thinks of Tesla.
Tesla’s retail investors, particularly some who are quite active on Twitter, have observed that the electric vehicle maker’s Ba1 rating from Moody’s — the highest among junk ratings — doesn’t quite make sense, given that Tesla is pretty much the only automaker that’s still growing at a significant rate today. Among these was a retail investor Alexandra Merzwho contacted Moody’s to inquire about the matter.
Moody’s analyst Rene Lipsch responded to the retail investor, noting that Tesla’s junk status is due to more qualitative than quantitative factors. Lipsch also mentioned a variety of factors that affect Moody’s lackluster outlook on Tesla, such as the company’s narrow product lineup.
Here is the analyst’s full response.
Dear Mrs Merz,
Thank you for contacting us. For reference, I’ve copied our considerations for a Tesla upgrade below (see Jan. 24 press release). The considerations are not so much quantitative as qualitative. Above all, we are looking for an expansion of the company’s product line. Today, Tesla remains closely dependent on two models mainly, although very powerful. Also note in this regard that one of the models was first introduced in 2017. More concrete prospects for a wider vehicle range would be seen as a positive development in this regard.
The ratings could be improved if Tesla successfully expands its global footprint, maintains a strong competitive global presence as other automakers offer a growing number of battery-electric models and improves its product lineup. Tesla’s ability to maintain an EBITA margin of at least 7% (measured excluding the contribution of emission credits) and a consistent and prudent financial policy are also important considerations for higher ratings. Additionally, Tesla will need to maintain very good liquidity, including ample cash and considerable committed availability under its revolving credit facility.
Moody’s response quickly caught the attention of notable TSLA retail investors, including content creator YouTube David Lee. The content creator noted that Moody’s claim that Tesla isn’t investment grade was “ludicrous.” Musk then responded to Lee’s tweet, saying “Moody’s is irrelevant.”
Member of the Tesla Board of Directors Hiro Mizuno also commented on Moody’s reasons behind Tesla’s junk rating. Mizuno pointed out that the variety of a company’s product portfolio shouldn’t be so relevant, especially since many companies typically experience massive growth with a super-performing product. That being said, the Tesla board member noted that he appreciated Moody’s responding to Tesla’s retail investors to explain their position on the electric vehicle maker.
Interestingly enough, Moody’s Rene Lipsch was featured in a discussion on Bloomberg on what he sees as effective strategies in the electric vehicle sector. When asked if he liked a focused, streamlined approach to electric vehicles, like the one taken by Tesla and now also being taken by Ford, Lipsch noted that he liked Ford’s decision to target a few automotive segments with a few targeted electric vehicles.
Disclaimer: I’m a long time TSLA follower.
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