Tesla stock (NASDAQ:TSLA) received a stamp of approval from S&P Global Ratings on Wednesday, with the firm revising its outlook on the electric car maker’s bonds from “Negative” to “Positive.” The revised outlook came as a result of Tesla’s stronger-than-expected cash flow and recent debt reduction.
With this change in mind, a potential credit upgrade for Tesla might be in line for the near future. Interestingly, S&P opted to bypass the “Stable” view in between its “Negative” and “Positive” ratings on the “increased likelihood” that Tesla will maintain a high demand for its products and achieve better manufacturing efficiencies.
“The positive outlook reflects an increased likelihood that Tesla’s credit metrics will improve more than our base-case projection because of higher demand and manufacturing-related efficiencies,” S&P Global said.
Tesla currently has a B- rating from the S&P Global Ratings since the firm initially assigned a grade to the electric car maker back in June 2015. Amidst Tesla’s struggles with its manufacturing ramps for the Model X and Model 3, the company’s ratings have mostly been subject to a “Negative” outlook. This was due to the company’s profitability and manufacturing challenges.
These challenges appear to have been addressed by the electric car maker, at least to some degree, as evidenced by its strong Q3 2019 results. During the third quarter, Tesla was able to return to profitability, delivering and producing a record number of cars. With its Q3 2019 results, Tesla was able to prove that it could turn a profit even as it pushes the Model 3 to market, a vehicle that is notably more affordable compared to the flagship Model S and Model X.
So far, Tesla stock has lost about 3% year-to-date. This contrasts with the S&P 500’s gains of 23% and the Dow Jones Industrial Average’s 18% increase.
After struggling for the most part of the year following a challenging Q1 and Q2, Tesla is poised to make headway this fourth quarter. This month alone, Tesla appears ready to begin operations at Gigafactory 3 in Shanghai, which would allow the company to tap into the local Chinese EV market without the additional weight of import tariffs. Tesla will also be unveiling its latest vehicle, Elon Musk’s “Cybertruck” pickup, on November 21 at Hawthorne, CA.
It remains to be seen if Tesla can sustain the momentum it caught following the release of its Q3 2019 earnings report. Yet, much to most of the dismay of the company’s critics and skeptics, it appears that things may now be looking up for the electric car maker.
Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.