Moody’s upgrades Tesla’s credit rating to Baa3

Yahoo Finance’s Pras Subramanian joins the Live show to discuss Tesla’s Moody’s upgrade and the EV makers growth in Europe.

Video Transcript

JULIE HYMAN: Tesla's credit rating was Ba1, or junk status, according to Moody's investor services at the end of January, but yesterday evening, the credit rating provider upgraded the EV maker to Baa3. That's its lowest level, but it is investment grade-- of investment grade, I should say. Some investors say it should be much higher, based on Moody's own calculations.

S&P Global upgraded Tesla's credit profile to investment grade in October, noting its EV market leadership and manufacturing efficiency with Moody's. The reason Tesla wasn't upgraded sooner may be Tesla CEO Elon Musk. Yahoo Finance Pras Subramanian has the details, and all of this has to do with the debt that Tesla issues and at what price. That's why these ratings are important.

PRAS SUBRAMANIAN: Right. So you know, Tesla basically entering the blue chip world now, right, following this Moody's upgrade to, like you said, Baa3, I believe. This also citing a lot of what S&P said to market leadership, able to build cars cheaper. They're the top footprint with regards to EV manufacturing. But yes, this is important because when two ratings agencies give you the best grade status, you get blue chip status. It means cheaper to issue debt. You can issue it more cheaply, more access to capital. And that means certain investors like pension funds and things like that can actually buy your debt. And that's good for Tesla.

You know, I'm kind of surprised why this didn't happen sooner, right? Because Moody's-- sorry, S&P did this in October. And Tesla had several quarters of profitable growth. They're the, like I said, a top 10 company by market cap right now in the US. Very little debt, decent cash position. So-- and industry best margins. So it's not surprising this happened, but, you know, why it took so long, who knows?