Tesla (TSLA) has been officially upgraded to investment grade long-term credit rating by S&P Global Ratings.
Despite delivering profits for more than two years straight and building a cash position of over $18 billion while sitting on very little debt, Tesla was still rated as a “junk bond” by rating companies like S&P Global Ratings and Moody’s Investors Service.
Earlier this year, we reported that the rating agencies are finally changing their opinion on the electric automaker and considering upgrading their ratings.
Today, S&P Global Ratings announced that it raised its long-term credit rating on Tesla from BB+ to BBB, which is the automaker’s first investment grade rating.
The rating company wrote about Tesla in its explanation for the upgrade:
We now view Tesla’s credit profile more favorably because it continues to demonstrate market leadership in electric vehicles (EVs), with solid manufacturing efficiency that supports strong EBITDA margins and sustained positive free operating cash flow (FOCF), above our previously established upside triggers.
S&P Global Ratings admitted that Tesla has surpassed its expectations on many metrics.
The company believes that Tesla will continue to maintain low debt while delivering strong profits:
The stable outlook reflects our expectation that Tesla will maintain low debt levels as it sustains its solid market share, profitability, and strong liquidity amid a weakening economy and an increasingly competitive environment for EVs.
While this upgrade may not be important for the average investor and Tesla shareholders, it is a big deal for some large funds that often have a policy not to invest in companies that have anything less than an investment grade rating – often referred to as “blue chips.” This has been preventing some large funds from investing in Tesla.
This was a long time coming. Tesla has been generating billions of dollars in net income every quarter for a while now, but it got the cold shoulder from those rating agencies until now.
Now Tesla is basically a “blue chip” stock, which could open up more investments in the company.
Obviously, I think that some funds are still going to have issues holding Tesla’s stock for other reasons, like how controversial Elon Musk can be for some people, but for the most part, this is the last of the manageable hurdles.
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