S&P Global Ratings bumped up its credit rating for Tesla (TSLA) closer to investment grade ahead of the automaker’s inclusion in the S&P 500 index on Monday. Tesla stock rose to a record high.
S&P Global raised the Tesla rating to BB from BB- with a positive outlook. The ratings agency notes that equity share sales in 2020 — totaling $12.3 billion — have boosted liquidity and reduced the company’s financial risk.
“As a result, Tesla’s net debt is essentially zero,” the ratings agency. “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 U.S. 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.”
But the agency also said risk-adjusting its assessment to include significant future uncertainties, such as slower-than-expected rate of electric vehicle adoption and fierce competition.
“Tesla will need to address intensifying competition as global automakers are expected to launch roughly 20-25 new EV models by the end of 2021,” the report said. Larger automakers like Volkswagen (VWAGY) and Toyota (TM), and luxury carmaker BMW (BMWYY) and Daimler (DMLRY), could be formidable competitors, the agency said.
S&P Global Ratings expects Tesla deliveries of more than 470,000 in 2020.
Shares rose 5.3% to 655.60 on the stock market today, hitting yet another high. Tesla stock has surged 61% over the past month on the news that it would be added to the S&P 500 before the open on Monday, Dec. 21, according to MarketSmith chart analysis.
Expect enormous trading volume on Friday, as S&P 500 index funds buy massive amounts of Tesla stock to rebalance their portfolio.
Tesla stock is on IBD Leaderboard.
China EV rival Nio (NIO) rose 3%. Among traditional automakers with big bets on electric cars or other alt-energy vehicles, General Motors (GM) rallied 1.5%, while VW is down 0.8% and Toyota fell 0.3%.
Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
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