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S&P pushes Tesla debt rating closer to investment grade

Sales could hit more than 800,000 in 2021

(Photo credit: Tesla)

S&P Global Ratings extended its bullish appraisal of electric vehicle maker Tesla (NASDAQL TSLA), upgrading the company’s debt rating from B+ to BB-. The raise puts the electric automaker just two notches from “investment grade” ratings.

“The stable outlook reflects our view that Tesla’s competitive position remains solid and its credit metrics will stay in line with our expectations,” S&P stated in a press release.

The BB rating is “less vulnerable in the near term but faces major ongoing uncertainties to adverse business, financial and economic conditions.” 

To be considered investment grade, the company must be rated at BBB or higher.

The latest upgrade is Tesla’s second in three months, as the EV maker went up a notch, from B- to B+ in late July.

While the battery electric vehicle (BEV) market remains “a sliver” of total U.S. auto sales, Tesla’s BEV market share in the U.S. stood at almost 80% in the first half of 2020, according to the release. 

S&P’s latest forecast projects Tesla deliveries of over 470,000 in 2020 and over 800,000 in 2021 as production for the Model Y increases.

“This ramp-up in production was significantly faster than its initial Model 3 ramp-up, which took over nine months to reach the same weekly rate,” the release stated. “We expect further improvements in efficiency, cost and technology as Tesla builds on lessons learned from prior factories.”

In July, Tesla announced it will build its newest Gigafactory near Austin, Texas. The 2,000-acre site will be used to build the Cybertruck, the Tesla Semi and the Model 3 and Model Y for the eastern half of North America.

Among the factors that could lower the rating include problems expanding global manufacturing, lowered demand for EVs, competition from traditional automakers and “draw[ing] customers away from buying Tesla’s vehicles,” S&P stated.

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