Tesla stock could use all the support it can get right now – missed expectations for Q3 deliveries and of course stronger expectations for CEO Elon Musk’s sales to fund Twitter takeover they have measured the course since the beginning of the week. However, the rating agency S&P Global Ratings brought at least a small boost later on Thursday: As it was too late to judge by the bare numbers, Tesla’s securities were upgraded to a level that counts as “investment grade” for the first time. This is also positive for stocks, because some funds are now allowed to invest in them.
Tesla’s rating has improved by 2 levels
Production and deliveries at Tesla have exceeded its own expectations, and capacity upgrades appear on schedule to serve strong demand through 2023, S&P Global wrote Thursday. in a research update. That almost sounds like stock analysis, but it has to do with Tesla’s bonds: The company’s credit profile now looks better because it continues to be a leader in electric vehicles. Along with consistent efficiency, this enables high levels of profitability and consistent cash flow.
So S&P Global Ratings upgraded Tesla’s bonds to two notches to BBB. The original BB+ rating was the highest it still is in the “speculative grade” category, also disrespectfully known as “junk”. The best rating ever is S&P AAA. Two other officially recognized agencies, Moody’s and Fitch, use the same classification of investment grade or junk and many levels within these groups.
A positive sign also for Tesla shares
With the improvement of the S&P Tesla’s bonds now have an investment grade rating for the first time in their history. In theory, this makes it possible to issue new bonds at lower interest rates. In Tesla’s practice, this factor is completely absent because the company is often in debt and generates a high surplus. Also, its securities were previously traded at rates similar to those rated best.
– Gary Black (@garyblack00) October 6, 2022
But more important is the impact on the stock, said Gary Black, a fund manager invested in Tesla who has been calling for and expecting a rating upgrade for some time. According to him, there are professional funds that are not allowed to buy shares in companies whose bonds are rated speculative. Tesla is now their first choice. For some of his colleagues, a bond rating in the investment industry is just a form of improvement, Black wrote: proof that you are dealing with a “blue chip” company.
A competitor’s agency may follow suit
At the second major agency, Moody’s, Tesla has not yet come that far. When asked about this fact by email from a dedicated shareholder, The analyst involved there recently did not deny Tesla’s financial strength, but said that from a quality point of view, one would like to see more concrete signs of the expansion of the product range. Black assumed on Thursday that Moody’s upgrade would not be long in coming: the agency always follows its rival S&P in Tesla, he wrote. It will probably be after the publication of the Q3 business figures.