Tesla Inc TSLA debt has got a rating boost from S&P Global Ratings on the basis of the electric vehicle maker's “mounting liquidity” significantly reducing financial risk.
What Happened: The agency said in a statement it was raising its ratings on Tesla to “BB.” The upgrade puts the Elon Musk-led automaker just two steps below the highest A3 rating. BB is considered to be speculative by S&P but denotes the least degree of speculation.
S&P noted that the automaker undertook a $5 billion stock sale and also raised $7.3 billion in two previous share sales this year. It expects Tesla’s balance sheet to exceed $19 billion at the end of the year.
“Tesla's net debt is essentially zero,” wrote S&P. The automaker would be able to easily fund its expansion in both China and Europe and broaden its manufacturing base in the United States, as per the agency. The “cushion of cash” will also help Tesla with respect to navigating through the pandemic.
Why It Matters: S&P said its outlook is positive on the automaker and there is a one in three probability that it could raise ratings over the next 12 months if “Tesla's competitive advantage strengthens meaningfully.”
The upgrade comes just a day before the automaker is set to join the S&P 500 index.
See Also: Tesla Will Replace REIT In S&P 500, Occidental Petroleum In S&P 100
Tesla shares have surged 683.95% on a year-to-date basis while the S&P 500 index has returned 15.22% in the same period.
Price Action: Tesla shares closed nearly 5.3% higher at $655.90 on Thursday and fell 1.2% in the after-hours trading to $648.
Related Link: Tesla And The S&P 500: Expected Moves And Spread Trading
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