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Moody’s upgraded Tesla to Ba3 from B2 and changed the outlook to positive from stable. With this rating upgrade, Tesla is now three notches below investment grade. They also upgraded Tesla’s senior unsecured rating to B1 from B3. The broad parameters focused on Tesla’s improving outlook for the profitability of their core automotive operations (ex-sale of regulatory credits), expanding global market for battery electric vehicles (BEVs), and healthy liquidity.

Moody’s noted that the scaling up of Tesla’s BEV operations will help in improving their margins and profitability, citing Model 3 production. They see Tesla’s large cash position of $19bn helping fund expansions in Europe and USA as the market grows. Moody’s expects the industry’s BEV sales to grow from 1.4% of total global automotive unit sales currently to ~10% by 2025-26, and ~25% by 2030. The rating agency did note that Tesla would have been unprofitable if not for their regulatory emission credit sales and expects this to decline for Tesla. The positive outlook is on the backdrop of its leadership position, growth prospects and comfortable liquidity. Liquidity is more than sufficient to repay $1.8bn in debt over the next year, to fund $4.5bn-6bn in capex and cover negative free cash flow of ~$1bn.

Tesla rating

Tesla’s 5.3% 2025s were flat at 103.75, yielding 4.34%.

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