Tesla was upgraded to BB+ from BB by S&P, putting them just a notch away from an investment grade rating. Despite near-term bottlenecks like the semiconductor shortage and supply-side issues in the industry, S&P expects Tesla’s vehicle deliveries, revenues and earnings to remain strong over the next few quarters. Strong EBITDA margins, improved execution, efficient production and global scaling efforts add to its positives. Tesla’s market share in the US was ~65% in 9M2021 and its global market share in the twelve-months ending June 2021 was ~21%, including about 15% in China. Tesla’s early settlement of $1.8bn of its bonds due 2025 in Q3 was a credit positive and S&P expects its cash to exceed $15bn ending 2021 and thereby its net debt at zero. They added, “With more cash on its balance sheet than total debt, the company appears easily able to fund its global expansion”. S&P said, “We could consider an upgrade to investment grade if the company remains on a trajectory to sustain automotive EBITDA margins above 18% (excluding regulatory credits) as its Berlin and Austin production facilities come online”. They also expect Tesla’s free operating cash flow generation to remain positive more consistently, even as its global manufacturing footprint expands over the next 12 months, leading to the positive outlook. This is the fourth upgrade from S&P in the past year. Tesla is currently rated Ba3 by Moody’s, three notches below IG.
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