Tesla (NASDAQ: TSLA) received a bump on its credit rating to BB from BB- from the S&P Global Ratings earlier today. The group also issued a “Positive Outlook,” stating that “mounting liquidity has substantially reduced its financial risk.” TSLA stock soared to an all-time high of $658.82 during Thursday’s session but closed just below at $655.90.
The S&P Global Ratings made the announcement at about 2:20 PM EST on Thursday, citing numerous advances in the company’s infrastructure as reasons for the credit rating upgrade.
“In addition, the company continues to improve operating execution, become more efficient in production, and make strides in its global expansion,” a release from the group said.
Tesla is coming off of a completed sale of $5 billion of common stock through its at-the-market offering program. It was completed in record time, taking a little over a day to complete. Because of the sale, “Tesla’s net debt is essentially zero,” the S&P said, and its assessment of the automaker’s financial risk has reduced “substantially.”
Tesla has performed well on Wall Street in 2020, surging over 650% so far this year. Much of this has been fueled by news of battery and tech advancements, as well as increasing sales and delivery numbers. Because of the increased sales figures and healthy balance sheet, the S&P believes that Tesla is less likely to experience bottlenecks or shortcomings in its development of production facilities on foreign soil.
“With more cash on its balance sheet than debt, the company appears easily able to fund its global expansion in China and Europe, and broaden its U.S. manufacturing base by opening a facility in Austin, Texas,” the release said.
This is the second time this year that the S&P Global Ratings has upgraded Tesla’s credit rating. The first time occurred on July 28, when Tesla was upgraded to B+ from B-, which was mostly attributed to the company’s improved profitability and cash flow generation after a strong first half of 2020, despite the COVID-19 pandemic halting production efforts at the Fremont factory in Q2.
The S&P Global Rating system lists four slots above Tesla’s current BB rating: BBB, A, AA, and AAA. There is still plenty of room for Tesla to obtain these ratings, which can be captured by continuing production efforts of the Model 3 in China and the Model Y if the company demonstrates consistent operational improvements, if demand for the company’s EVs increases, and if financial metrics confirm that Tesla’s market position is stable to increase “gross margins and rising FOCF generation.”
At the time of writing, TSLA shares were trading at $649.37, up 4.27%.
Disclaimer: Joey Klender is a TSLA Shareholder.
Updates made at 4:01 EST to include price at close and all-time high during trading hours.