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Elon Musk Takes on a Wall Street Giant

Elon Musk fears neither his competitors nor the regulators. 

The CEO of Tesla  (TSLA) has not hesitated to attack the powerful Securities and Exchange Commission with which he has had a stormy relationship since his now famous tweet of Aug. 7, 2018, in which he announced that he was going to take the manufacturer of electric vehicles private. 

Musk’s message prompted an investigation by the SEC. which subsequently resulted in a settlement. The CEO was fined $20 million, stepped down as chairman of the board, and the group had to review all his tweets that could influence Tesla stock price. The vehicle manufacturer was also fined $20 million. 

For several months now, Musk has been trying to have the settlement overturned on the pretext that the federal agency violated his First Amendment rights. He went to court claiming that the SEC used the agreement to “launch endless, boundless” investigations of his public statements.

Moody’s Is the New Target

In April, a New York federal judge told the billionaire in a ruling that he would not end the agreement that called for him to have his social media posts approved by a company attorney if they consisted of material information about Tesla.

“None of the arguments hold water,” 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 most powerful and influential CEO in the world with nearly 105 million followers on Twitter at last check, there is no institution or company that is untouchable. The rating agency Moody’s has thus just learned the hard way.

In an incendiary tweet, the billionaire claims that Moody’s is no longer relevant. This harsh criticism stems from the fact that the rating granted to Tesla by Moody’s is average while the automaker which sees itself 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 fans on Twitter 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 she sent to the rating agency asking for an upgrade of Tesla’s rating . In its response, Moody’s repeats the arguments it had already put forward in January during Tesla’s last rating.

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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 that the rating agency might consider upgrading the rating 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 increase its scale rapidly and improve its profitability notably,” the rating agency said.

“Tesla will maintain its position as the leading manufacturer of battery electric vehicles with a swiftly expanding presence in the US, Europe, and China. Moody’s anticipates that Tesla will deliver nearly 1.4 million vehicles in 2022, up from approximately 936,000 in 2021. Considerable investments in new production facilities in Berlin and Austin enable the steep increase in vehicle deliveries, along with an increase in production capacity in its existing plants in Fremont and Shanghai.”

But the rating agency had also warned that Tesla is too dependent on the entry-level Model 3 sedan and the 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 offering of battery electric vehicles by other automakers could start to exert 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 breadth.”

The rating is important because it influences the interest rates at which companies are lent money and especially because investors also make their trade-offs according to these ratings to determine whether they can invest with confidence in a company. The rating most often reflects the financial strength of a firm.

The dependence 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  (AAPL) , which is rated AAA by the rating agency, depends heavily on the iPhone.

“How many products does Apple make. Like 4. This is absurd. Teslas total dominance is the true qualitative issue,” said Tesla investor Ross Gerber.

“I guess they rejected AAPL then since majority of revenue comes from the iPhone,” added another Twitter user.

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