Live News: Tesla’s Credit Rating Upgraded to Investment Grade by S&P
Tesla’s bonds are now rated investment grade by Standard & Poor’s, with the agency citing the electric car maker’s recent production numbers as the reason for moving the company’s debt rating out of junk territory.
The rating agency raised Tesla’s rating, including credit rating and issue-level rating, from BB+ to BBB on Thursday. This pushed it past the threshold that separates investment grade from high-yield, or so-called junk, territory.
Companies considered investment grade are considered to have a relatively low risk of default, which may lead to them potentially being able to borrow money at lower rates. Rival agency Moody’s has a Ba1 rating on Tesla, which still puts it in junk territory on this scale.
“The stable outlook reflects our expectation that Tesla will maintain low debt levels while maintaining strong market share, profitability and strong liquidity in an increasingly competitive environment for electric vehicles,” S&P said in a statement. a statement.
Tesla has produced about 930,000 vehicles so far this year, about 50% year-on-year, S&P said, despite the suspension of production in China in the second quarter, component shortages and inflation. That beat the agency’s expectations, leading its forecast that Tesla will sell 2 million units in 2023. S&P said it would help the automaker maintain its electric vehicle market share as it faces the competition from automakers in China and Europe.
The agency expects Tesla to maintain a free operating cash flow-to-sales ratio above 10%, despite high expenses, supply chain issues and rising raw material costs.
“With more than $18.3 billion in cash and cash equivalents as of June 30, 2022 and our strong cash flow forecast through at least 2023, we believe Tesla will maintain its strong liquidity,” S&P said. .
Still, S&P said Tesla needs to make electric vehicle ownership more profitable, and improving affordability will be an “important consideration” for their market share assumptions and for “potential improvements to its competitive advantage over beyond 2024”.