S&P Global Ratings upgrades Tesla's (NASDAQ: TSLA) credit rating up to BB from BB- and issues a Positive Outlook. The index notes that the sale of shares during 2020 significantly increased Tesla's liquidity and significantly reduced the company's financial risks.
S&P Global Ratings wrote that Tesla's net debt is essentially zero, so the company can easily fund its global expansion in China and Europe and the United States. Also, such a cash cushion will help the company cope with the ongoing economic impact of the COVID-19 resumption.
"As a result, Tesla's net debt is essentially zero. Based on a key credit metric, debt to EBITDA, our assessment of financial risk has reduced substantially. With more cash on its balance sheet than debt, the company appears easily able to fund its global expansion in China and Europe, and broaden its US manufacturing base by opening a facility in Austin, Texas. Moreover, this cushion of cash will help the company navigate through the ongoing economic impact from the resurgence of COVID-19."
The rating agency notes that the company continues to improve performance, improve production efficiency, and make progress in its global expansion. Therefore, they expect Tesla deliveries to surpass 470,000 in 2020.
"In addition to building liquidity, the company continues to improve execution, become more efficient in production, and make strides in its global expansion. In our latest forecast, we expect Tesla deliveries of more than 470,000 in 2020. While the battery electric vehicle market remains a sliver of total US auto sales, Tesla's market share was almost 80% in the first half. Production continues to improve."
The agency also expects further efficiency gains, forecasting over 870,000 deliveries in 2021.
"We expect further improvements in efficiency, cost, and technology as Tesla builds on lessons learned from prior factories. We think deliveries could reach over 870,000 in 2021."
Tesla's positive outlook reflects S&P's view that financials will remain in line with expectations of zero net debt and positive free operating cash flow, even as the company expands its global manufacturing presence in the next 12 months.
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About the Author
Eva Fox joined Tesmanian in 2019 to cover breaking news as an automotive journalist. The main topics that she covers are clean energy and electric vehicles. As a journalist, Eva is specialized in Tesla and topics related to the work and development of the company.