New York, March 20, 2023 — Moody’s Investors Service (« Moody’s ») assigned a Baa3 long-term issuer rating to Tesla, Inc. (« Tesla ») and withdrew the Ba1 corporate family rating, the Ba1-PD probability of default rating, as well as the SGL-1 speculative grade liquidity rating. The outlook is stable.

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. The upgrade also incorporates governance considerations, including Tesla’s prudent financial policy and management’s operational track record.

Assignments:

..Issuer: Tesla, Inc.

…. Issuer Rating, Assigned Baa3

Withdrawals:

..Issuer: Tesla, Inc.

…. Corporate Family Rating, Withdrawn, previously rated Ba1

…. Probability of Default Rating, Withdrawn, previously rated Ba1-PD

…. Speculative Grade Liquidity Rating, Withdrawn, previously rated SGL-1

Outlook Actions:

..Issuer: Tesla, Inc.

… Outlook, Changed To Stable From Positive

RATINGS RATIONALE

The Baa3 long-term issuer rating reflects Moody’s view that Tesla will maintain its position as one of the leading manufacturers of battery electric vehicles, as the company further solidifies its global footprint. Moody’s anticipates that Tesla will deliver nearly 1.8 million vehicles in 2023, a 34% increase compared to the 1.3 million vehicles that it delivered in 2022, and nearly double the deliveries in 2021. Considerable investments in new vehicle and battery cell production facilities enable a steep increase in vehicle deliveries.

Tesla’s product offering is expanding, with early production of the Cybertruck slated for later this year. The development of a next generation vehicle at a targeted 50% reduction in cost holds the prospect for a meaningful decrease in the reliance on the earnings contribution of the Model 3 and Model Y.

Tesla’s growing scale, regional production facilities, and heightened focus on the efficiency of its manufacturing processes support an EBITA margin that Moody’s expects to be 15.8% in 2023. The margin compression relative to an industry-leading 18.9% EBITA margin last year reflects a drop in Tesla’s vehicle prices, amid a more competitive offering of battery electric vehicles by other automakers, changes in tax credits across geographies, and concerns about vehicle affordability.

Moody’s expects Tesla’s financial policy to remain prudent. Financial leverage is well below 1 time after Tesla repaid about $10 billion of debt in the last three years. Other governance considerations are management’s track record – balancing business accomplishments against notable key man risk – and close ties between members of the board and the CEO.

The stable outlook reflects Moody’s expectation that Tesla will continue to capitalize on robust growth in global demand for battery electric vehicles but in an increasingly competitive environment. Further, Moody’s anticipates Tesla will maintain an industry leading EBITA margin in the next 12 months, albeit still largely reliant on only two models.

Moody’s anticipates that liquidity will remain very good, underpinned by a very sizeable and growing balance of cash and investments, prospects for free cash flow of more than $7 billion, and limited debt maturities in the next two years.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The rating could be upgraded if Tesla maintains a strong competitive global presence as other automakers offer an increasing number of battery electric models, and successfully broadens its product offering such that it reduces its reliance on the earnings contribution of the Model 3 and the Model Y. Tesla’s ability to sustain an EBITA margin in the high-single digits, and a longer track record of a consistent, prudent financial policy are also important considerations for a higher rating.

The rating could be downgraded if demand for Tesla models materially softens amid an expanding offering of battery electric vehicles by other automakers, or if Tesla is unable to sustain its EBITA margin in the mid-single digits. A material shift in Tesla’s financial policy that signals a greater tolerance for financial risk could also cause a ratings downgrade, including if debt/EBITDA is greater than 3 times, or if the amount of cash, investments, and committed revolver availability decreases considerably from current levels.

The principal methodology used in these ratings was Automobile Manufacturers published in May 2021 and available at https://ratings.moodys.com/api/rmc-documents/72240. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Tesla, Inc., headquartered in Austin, Texas, is the world’s leading manufacturer of battery electric vehicles, and is also a producer of energy generation and storage systems. Revenue was $81.5 billion in 2022.

REGULATORY DISCLOSURES

For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of  the guarantor entity.  Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Rene Lipsch
VP – Senior Credit Officer
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Dean Diaz
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
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JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653