Elon Musk Calls Out Moody's As 'Irrelevant' In Evaluating Tesla's Credit Rating

Tesla, Inc. TSLA investors harbor a sense of disappointment over rating agencies giving junk status to their favorite company’s credit.

S&P currently rates Tesla a BB+, which is one step below investment grade. At Moody's Corporation MCO, Tesla, despite getting a two-notch upgrade in January, is still at Ba1, the highest among the junk ratings. The agency hinted at moving the company’s credit to investment grade as soon as early next year.

What Happened: A Tesla influencer going by the Twitter handle @TeslaBoomerMama shared a reply she received from Moody’s to her communication expressing her view that the EV maker deserves a credit rating upgrade.

Moody’s analyst Rene Lipsch clarified that the reasons for the junk status are more of a qualitative rather than a quantitative nature. The company’s reliance on a narrow product lineup was cited as a reason for the not-so-positive outlook. He also recalled his recommendations that an upgrade could be in the cards if Tesla successfully expands its global footprint, maintains a strong competitive global presence, and improves its product breadth.

Among other criteria, Moody’s looks at Tesla’s ability to sustain an EBITA margin of at least 7%, a consistent, prudent financial policy, and good liquidity.

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Another Tesla influencer named Dave Lee quote-tweeted the tweet of @@TeslaBoomerMama and said Moody’s claim that Tesla isn’t investment grade is ridiculous.

Responding to Lee’s tweet, Tesla CEO Elon Musk said, “Moody’s is irrelevant.”

Why A Rating Upgrade Is Important For Tesla: An investment grade is a prerequisite for institutional investors, which do not invariably invest in companies having a junk credit rating. This explains the relatively smaller institutional ownership in Tesla compared to big techs such as Apple, Inc. AAPL and Amazon, Inc. AMZN.

The increased buying interest could give a lift to the sagging stock, which has not received the much-needed lift from the recent stock split the company implemented.

Tesla stock closed Friday’s session at $270.21, down 2.51%, according to Benzinga Pro data.

Photo: Created with an image from TED Conference on flickr