Canopy Growth stock tumbles after announcing $200 million share sale plan
Investing.com -- Moody’s Ratings has affirmed Tesla (NASDAQ:TSLA), Inc.’s Baa3 long-term issuer rating with a stable outlook, citing the company’s technology strengths despite mounting challenges in its automotive business.
The rating agency noted that Tesla’s vehicle technology, software and AI capabilities provide a foundation for continued innovation and new product offerings. These competencies could help Tesla broaden its vehicle lineup and eventually transition to autonomous vehicles.
Tesla maintains robust liquidity and a strong balance sheet, which Moody’s believes gives the company sufficient resources to address challenges in its automotive business while executing product introductions and technology development.
The electric vehicle maker launched a pilot of its robotaxi business in June, with plans to scale operations quickly while maintaining safety standards and obtaining necessary permissions.
However, Tesla faces significant headwinds that will impact earnings. Brand image concerns are contributing to declining vehicle sales in several regions, particularly Europe. U.S. sales are expected to fall further after the federal tax credit for electric vehicles ends on September 30. The Chinese light vehicle market remains fiercely competitive.
Additionally, the value of U.S. regulatory credits that Tesla earns is expected to diminish as other automakers no longer face penalties for failing to comply with fuel-economy standards. The company also faces increasing costs from tariffs on imported materials and components.
As a result, Moody’s expects Tesla’s EBITA margin to decrease to less than 8% in 2026 from 10.1% in the last 12 months ended June 30, 2025. The company’s energy generation and storage segment will contribute significantly to profitability, along with interest earned on its substantial cash reserves.
Tesla’s liquidity is expected to remain solid, with cash and short-term investments exceeding $35 billion and a $5 billion senior unsecured revolving credit facility. Free cash flow is set to decrease but remain considerable despite ongoing significant capital spending.
The rating could be upgraded if Tesla maintains a strong competitive global presence while successfully broadening its product offering to reduce reliance on the Model 3 and Model Y. Sustaining a high-single digit EBITA margin and maintaining a prudent financial policy would also support a higher rating.
Conversely, the rating could be downgraded if demand for Tesla models materially weakens, vehicle sales persistently falter due to unfavorable brand perception, or if the company cannot sustain a mid-single digit EBITA margin. A material shift in financial policy indicating greater risk tolerance could also trigger a downgrade.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.