Tesla actually has a “run” in 2021: Not only has the share of the leading e-car manufacturer from the USA increased in value by around 46.45 percent since the beginning of the year, it was not until the current November that the share reached a new record high is currently at $ 1243.25. This results in a proud market capitalization of $ 1.07 trillion (as of the closing price on November 12, 2021). Elon Musk’s e-car empire has thus advanced into a highly elitist area of the stock market that was previously reserved for the big tech companies. So far, only huge calibers such as Apple, Amazon, Microsoft or Google parent Alphabet can boast a stock market value beyond the trillion.
Tesla owes the recent growth in market capitalization to good numbers for the third quarter of 2021 as well as an announced deal with the car rental company Hertz, which is not yet in the dry towels. Nonetheless, the level at which Tesla shares are currently moving shows that shareholders – and numerous analysts as well – have strong confidence in the Elon Musk group. “Tesla has a high rating, but behind this rating is a business that is both growing and generating profits and cash well above the industry norms,” said Philippe Houchois of investment bank Jefferies, according to the Wall Street Journal (WSJ).
But trust in Tesla is not so high everywhere. Because while the rating agencies S&P Global and Moody’s all assigned triple A ratings to the other companies from the 1 billion dollar club according to the “WSJ”, Tesla ranks them at junk level.
The rating for Tesla’s debts is currently Ba3 at Moody’s according to “WSJ”, while S&P assigns the grade BB +. Both ratings are in the “junk” range, but only slightly below the “investment grade” level that characterizes first-class bonds. Most recently, Moody’s raised the Tesla rating to its current value in March, which says the debt is somewhat speculative and there is some risk. S&P upgraded the electric car manufacturer from BB to BB + after submitting the quarterly figures. According to “Seeking Alpha”, the rating agency praised the achievement of the projected production rate of one million electric cars per year as a milestone and the strong EBITDA margin in the third quarter. S&P can envision upgrading Tesla’s rating to investment grade if the EBITDA margin – excluding income from sales of CO2 credits – remains above 18 percent during the start-up of the new factories in Berlin and Austin, it said. The market valuation of a company, on the other hand, is not mentioned as a relevant factor and accordingly has no effect on the rating.
“Right now the story here is that it is a company that has done extremely well by minimizing financial risks,” said S & P’s Nishit Madlani, according to WSJ. Tesla currently has the financial profile of an investment grade company – after all, the group can now show profits and no longer burns money – but there are several risks for the business. In this context, the S&P expert cited the growing competition from other EV manufacturers, possible problems in serving demand and risks for future business declines if Tesla produces more low-priced electric cars.
In the marketplace, the fact that Tesla’s debts are junk status is being taken quite calmly. “The stock market may be quicker to revalue the stock [als die Ratingfirmen]”, Said Seth Goldstein of Morningstar according to” WSJ “and expects the ratings to catch up with the stock performance at some point. According to “BNN Bloomberg”, Joel Levington of Bloomberg Intelligence made a similar statement. He expects the company to “move to investment grade within the next 12 months,” Levington said. Until then, Tesla’s high market capitalization ensures that creditors will have an unprecedented share cushion – for a junk bond issuer. In fact, Tesla’s stock market value may not be relevant for the rating agencies, but it is for many debtors. Because, according to “WSJ”, many of the Group’s obligations do not consist of conventional bonds, but of convertible bonds that can be exchanged for shares over time.
And the high share price and high market capitalization are also a good sign for covering Tesla’s future financing needs. David King of Columbia Threadneedle Investments, according to “WSJ”, assumes that Tesla will simply sell its own shares if new funds are needed. And even if Tesla should offer bonds again, it can be assumed that the group will get better terms because of its value. “I expect that they would get better pricing if they offer debts in the market,” said Eli Pars, Co-CIO of Calamos Investments, according to the WSJ. Although he believes that Tesla’s capital requirements will remain high in the coming years, the company could probably cover a large part of it itself with growing profits. “You may be close to self-financing,” Pars continued.
Tesla is also on the right track when it comes to paying off existing debts. According to the news magazine, the company spent $ 1.5 billion on lease repayments and debt repayments in the past quarter. A rather unusual step for a junk-level company.