Tesla debt is no longer junk-rated by Moody's after it upgrades Elon Musk's carmaker

• Moody's upgraded its outlook for Tesla bonds Monday, tagging them as a reliable investment.
• It's the second ratings agency to lift the EV maker out of junk territory, following S&P in October.

Moody's Analytics has upgraded Tesla bonds to investment-grade status for the first time, saying the Elon Musk-run carmaker's dominance of the EV market and its efforts to keep costs low have boosted its ability to repay its debts.

The agency, which judges companies' ability to pay back bondholders, lifted the company's rating by one notch Monday.

It now gives Tesla a "Baa3" rating, meaning it's no longer labeling its bonds as "junk" or purely speculative —the outlook used for companies that might struggle to repay their debts.

"The rating action reflects Moody's expectation that Tesla will remain one of the foremost manufacturers of battery electric vehicles with an expanding global presence and very high profitability," Rene Lipsch, senior credit officer at Moody's, said in a ratings action note.

"The upgrade also incorporates governance considerations, including Tesla's prudent financial policy and management's operational track record," he added.

Moody's also cited Tesla planning to start production on its Cybertruck model later this year as one factor that contributed to its upgrade.

Musk has set a goal of cutting the cost of building some Tesla models by 50%. Earlier in March, the CEO said there's a clear path for Tesla to make a smaller EV at half the production cost and difficulty of its popular Model 3, per The Wall Street Journal.

Tesla's share price closed 1.7% higher Monday, adding to a rally that has seen it rise 49% this year so far.

Ratings agencies had previously shunned Tesla bonds for years, even as a long-term surge in its share price saw it become the world's eight-most valuable company in terms of market capitalization.

But S&P Global Ratings upgraded the EV maker's bonds out of junk territory in October 2022, and now Moody's has followed suit.

Fitch Ratings, which is the other "Big Three" agency alongside S&P and Moody's, doesn't currently issue a rating for Tesla, meaning its bonds still aren't universally considered to be investment grade.

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