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Tesla’s debt rating moves closer to ‘investment grade’ following S&P boost

(Photo: Tesla Photographer/Instagram)

Tesla (NASDAQ: TSLA) had its debt ratings raised by the S&P Global Ratings on Monday from B+ to BB-. As a result, the electric automaker sits just two notches from “investment grade” ratings.

According to spglobal.comthe BB rating is “less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions.” BBB is needed to achieve “investment grade.”

The S&P listed several reasons for the boost in rating in a statement on Monday. “Improved execution, increasingly efficient production, and global expansion continue to strengthen the company’s competitive position,” the S&P said.

Indeed, Tesla has proven itself to be a continuous learner in terms of execution, production, and expansion. In execution, Tesla put its sizeable team to work in Q3, which led to a record quarter in terms of vehicle deliveries. 139,300 vehicles made it to consumers during 2020’s third quarter. This number was one of the direct reasons for the upgrade, MarketWatch reported.

In production, Tesla is adding lines in Fremont, preparing for the Model Y’s initial push in China, and working on manufacturing improvements to create a better product. CEO Elon Musk has been focused on increasing the effectiveness of Tesla’s manufacturing process this year. During the Q2 Earnings Call, Musk asked that anyone with a passion for manufacturing apply to work for Tesla.

“I just want to be clear, at Tesla, we love manufacturing. It’s awesome, and I really think more smart people should be working on manufacturing,” Musk said during the call.

The manufacturing focus that Tesla has emphasized has also helped in its ramp of the Model Y crossover. The accelerated adaptation that Tesla has applied to the manufacturing process of the Model Y has also contributed to the boosted ratings.

“This ramp up in production was significantly faster than its initial Model 3 ramp up, which took over nine months to reach the same weekly rate. We expect further improvements in efficiency, cost, and technology as Tesla builds on lessons learned from prior factories,” the S&P added.

Finally, Tesla’s international presence has been a crucial part of the company’s year-over-year growth. With Giga Shanghai in China manufacturing 12,212 in the span of 20 days last month to keep up with demand, Tesla has become the most popular EV brand in China.

Additionally, Tesla is building a new manufacturing facility in Germany, known as Giga Berlin, which will be completed and operational by Summer 2021. The electric automaker is also rumored to be in talks with India’s Government, looking to ramp its presence in the second-largest country in the world.

While Tesla’s annual goal for deliveries remains at 500,000, the S&P expects the company to finish 2020 with more than 470,000. The future outlook is bright, however, as the S&P believes sales could reach more than 800,000 units total beginning next year.

At the time of writing, TSLA shares were trading at $447.60, up 3.13% during the session.

Disclaimer: Joey Klender is a TSLA Shareholder.

Tesla’s debt rating moves closer to ‘investment grade’ following S&P boost
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