“Neither argument has merit,” Judge Lewis J. Liman of the U.S. District Court for the Southern District of New York wrote in a ruling.
The standoff with the SEC is proof that for Musk, who has become the world’s most powerful and influential CEO with nearly 105 million Twitter followers at last count, no institution or company is untouchable. Rating agency Moody’s just found out the hard way.
In an inflammatory tweet, the billionaire claims Moody’s is no longer relevant. This harsh criticism stems from the fact that Moody’s gave Tesla a mediocre rating, while the automaker, which sees itself more as a technology conglomerate, is the world’s sixth-largest company by market capitalization with a market value of $847 billion.
“Moody’s is irrelevant,” Musk told his millions of Twitter followers on Sept. 2.
It all started with a tweet from a Tesla fan who posted on social media a response from Moody’s to a message he sent to the rating agency asking for an upgrade of Tesla’s rating. In its response, Moody’s repeats the arguments it had already made in January during Tesla’s latest assessment.
Rating agencies are powerful
At the time, Moody’s upgraded Tesla’s rating by two notches to Ba1 from Ba3 previously, and the outlook was positive, suggesting the rating agency may consider an upgrade in the coming months.
The decision reflects “Moody’s expectation that Tesla will maintain its position as the leading manufacturer of battery electric vehicles, continue to rapidly increase its scale and significantly improve its profitability,” the rating agency said.
“Tesla will maintain its position as the leading manufacturer of battery electric vehicles with a rapidly expanding presence in the US, Europe and China. Moody’s expects Tesla to deliver nearly 1.4 million vehicles in 2022, up from about 936,000 in 2021. Significant investments in new production facilities in Berlin and Austin enable a sharp increase in vehicle deliveries, along with increased production capacity at its existing factories in Fremont and Shanghai.”
But the rating agency had also warned that Tesla is too reliant on its base Model 3 sedan and Model Y SUV/crossover, which accounted for about 94% of the 254,695 vehicles Tesla delivered in the second quarter ended June 30.
“Moody’s expects that a more competitive supply of battery electric vehicles from other automakers could start to put some pressure on margins in 2023.”
The agency, however, said it could upgrade Tesla if the company “successfully expands its global footprint, maintains a strong competitive global presence as other automakers offer an increasing number of battery electric models and improves its product mix.”
The rating is important because it affects the interest rates at which companies borrow money and especially because investors also make their hedges against these ratings to determine whether they can confidently invest in a company. The assessment most often reflects the financial strength of a business.
The reliance of a large proportion of investors on ratings has thus increased the power of the three major rating agencies: Moody’s, S&P Global Ratings and Fitch Ratings.
Does Moody’s treat Apple better than Tesla?
Musk and many Tesla fans believe that the rating of the world leader in electric vehicles should be one of the best possible at Moody’s, in other words AAA. They point out that Apple
(which has a AAA rating from the rating agency, is heavily dependent on the iPhone. AAPL)
“How many products does Apple make. Like 4. That’s absurd. The absolute dominance of Teslas is the real quality issue,” noted Tesla investor Ross Gerber said.
“I guess they ditched AAPL then since most of the revenue comes from the iPhone,” another Twitter user added.