Tesla has received an upgraded rating by the S&P to ‘BBB’, up from ‘BB+’, with the boost thanks to the electric automaker’s recent Q3 delivery numbers, according to the rating organization. This marks the first time Tesla has moved from ‘speculative grade’ to ‘investment grade’.
“We now view Tesla’s credit profile more favourably because it continues to demonstrate market leadership in EVs, with solid manufacturing efficiency that supports strong EBITDA margins and sustained positive free operating cash flow, above our previously established upside triggers,” said the S&P (via @SawyerMerritt).
Investment Grade, according to S&P means “Adequate capacity to meet financial commitments, but more subject to adverse economic conditions.” Whereas the former BB Speculative Grade means, “Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions.”
The S&P added, “the stable outlook reflects our expectation Tesla will maintain low debt levels as it sustains its solid market share, profitability and strong liquidity amid weakening economy and increasingly competitive environment for EVs.”
“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,” said S&P Global in an issued statement to Tesla North.
S&P says they could lower ratings if “Tesla adopts a more aggressive financial policy with respect to shareholder distributions, growth of its captive finance operations or other business segments, and acquisitions, such that financial cushion reduces materially; or It cannot sustain solid FOCF due to slowing growth or higher-than-expected spending.”
Tesla’s ratings could jump if the company, “sustains its first-mover advantage as EV demand expands and competition intensifies such that its global light vehicle market share appears likely to exceed 5%; It appears likely to sustain its recent track record of free cash flow beyond 2024; and It remains committed to a prudent financial policy in line with a higher rating,” said the S&P in a statement.
Back in October 2021, Tesla was upgraded to a BB+ rating. Tesla joined the S&P 500 back in December 2020.
Back in May, Tesla was removed from the S&P 500 Environmental Index, but Exxon Mobile remained. Tesla CEO Elon Musk responded by saying, “@SPGlobalRatings has lost their integrity” and “ESG is an outrageous scam! Shame on @SPGlobal.”
