Elon Musk is not afraid of his competitors or regulators.
The CEO of Tesla (TSLA) did not hesitate to attack the powerful US Securities and Exchange Commission (SEC), with which he has had a rocky relationship since his famous tweet on August 7, 2018, in which he announced that he would take the electric vehicle maker private.
That announcement prompted an investigation by the SEC, which subsequently led to a settlement. Musk was fined $20 million, stepped down as chairman of the board, and the group had to review all of his tweets that could have affected Tesla’s stock price. The vehicle manufacturer was also fined $20 million.
For several months, Musk has been trying to rescind the agreement on the pretext that the federal agency violated his First Amendment rights. He went to court, alleging the SEC used the settlement to “launch endless, endless” investigations into his public statements.
Moody’s is the new target
In April, a New York federal judge said the billionaire in his decision that he would not terminate an agreement that requires his social media posts to be approved by a company attorney if they consist of material information about Tesla.
“Neither argument holds water,” Judge Lewis J. wrote in a ruling. Lyman of the United States District Court for the Southern District of New York.
The conflict 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 check, no institution or company is untouchable. Thus, the rating agency Moody’s just learned the hard way.
In an inflammatory tweet, the billionaire claimed that Moody’s was no longer relevant. This harsh criticism stems from the fact that the rating given to Tesla by Moody’s is average, while the automaker, which is seen more as a technology group, is the sixth company in the world in terms of 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 posting on social media a response from Moody’s to a message it sent to the rating agency requesting an upgrade to Tesla’s rating. In its response, Moody’s repeated the arguments it had already made in January during Tesla’s latest rating.
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Rating agencies are powerful
At the time, Moody’s raised 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 a leading manufacturer of battery electric vehicles, continue to rapidly scale and significantly improve its profitability,” the rating agency said.
“Tesla will maintain its position as a 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 an estimated 936,000 in 2021. Significant investments in new manufacturing facilities in Berlin and Austin are enabling the sharp increase in vehicle deliveries, along with increased production capacity at the existing factories in Fremont and Shanghai.”
But the ratings agency also warned that Tesla is too dependent on the base Model 3 sedan and Model Y SUV/crossover, which account for about 94 percent of Tesla’s 254,695 vehicles delivered in the second quarter ended June 30.
“Moody’s expects that more competitive battery electric vehicle offerings from other automakers could start to put some pressure on margins in 2023.”
However, the agency said it could outperform Tesla if the company “successfully expands its global footprint, maintains a highly competitive global presence as other automakers offer an increasing number of battery electric models, and improves its product lineup.”
The rating is important because it affects the interest rates at which companies borrow money, and especially because investors also make their trade-offs based on those ratings to determine whether they can invest with confidence in a company. The rating most often reflects the financial strength of the company.
In this way, the dependence of a large part of investors on ratings increased the power of the three main 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 (AAPL) which is rated AAA by the rating agency, depends heavily on the iPhone.
“How many products does Apple make. Example 4. This is absurd. The total dominance of Teslas is the real quality problem,” said prominent Tesla investor Ross Gerber.
“I guess they ditched AAPL then since most of the revenue comes from the iPhone,” another Twitter user added.