Tesla’s Debt Rating Upgraded by Moody’s, Outlook Positive

The debt rating and the probability of default rating of Tesla Inc. (NASDAQ: TSLA) have been upgraded by Moody’s Investors Service, the rating arm of Moody’s Corporation (MCO). The rating firm’s outlook for this well-known EV stock is “positive.”

The debt rating of Tesla has been upgraded to Ba1 from Ba3 and the probability of default rating to Ba1-PD from Ba3-PD. 

Rationale behind the Upgrade & Positive Outlook 

The rating upgrade and positive outlook came on the back of Moody’s expectation for Tesla that it will remain a top manufacturer of battery electric vehicles, with a strong footprint in the U.S., Europe, and China. Additionally, it anticipates a rapid increase in the company’s scale, along with improved profitability from the EV maker. 

Moody’s believes Tesla’s new production facilities in Berlin and Austin will facilitate increased vehicle deliveries, supported by elevated production capacity in existing plants in Fremont and Shanghai. Consequently, the rating firm expects the company to record 1.4 million vehicle deliveries in 2022, compared with around 936,000 in 2021. 

Based on the above-mentioned positive factors, Moody’s estimates Tesla will record an EBITA margin of 16% in 2022, up from 12% recorded in the past 12 months, ended September 2021. However, it also anticipates competitive pressure to impact margins in 2023. 

Moody’s believes the company reflects a prudent financial policy, along with sound liquidity and a strong cash position. 

Overall, Moody’s positive outlook is driven by expectations for Tesla’s excellence to continue to capitalize on dynamic global demand for battery electric vehicles. 

Analyst’s Recommendation 

Yesterday, Wedbush analyst Daniel Ives maintained a Buy rating and a price target of $1,400 (50.54% upside potential) on Tesla.  

Ives commented, “In the backdrop of a white knuckle Fed tightening and valuation scrutinized market, Tesla’s stock has been under considerable pressure along with the rest of the growth space over the last month. With the company set to report earnings this Wednesday after the bell, we believe the emerging fundamental story at Tesla will be back in focus of the Street with currently demand outstripping supply for Musk & Co. by roughly 30% globally based on our estimates.” 

The rest of the Street is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 15 Buys, 8 Holds, and 6 Sells. The average Tesla price target of $1,074.69 implies 15.56% upside potential. Shares have gained 5.3% over the past year. 

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