Tesla gets upgraded BBB investment grade credit rating from S&P Global

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Credit: David Zalubowski | AP

S&P has upgraded Tesla’s credit rating to investment grade, from BB+ to BBB. S&P said in an announcement on Thursday that Tesla’s strong performance in 2022 was the catalyst for the upgraded rating.

According to S&P, Tesla reported higher production and delivery figures than they were expecting through the first nine months of the year. As a result, they upgraded their rating to investment grade because its “global capacity appears on track to meet the strong demands for its products into 2023.”

“Tesla Inc.’s reported production and deliveries for the nine months ended Sept. 30, 2022, were higher than our expectations and the ramp-up in its global capacity appears on track to meet the strong demand for its products into 2023. We now view Tesla’s credit profile more favorably because it continues to demonstrate market leadership in electric vehicles (EVs), with solid manufacturing efficiency that supports strong EBITDA margins and sustained positive free operating cash flow (FOCF), above our previously established upside triggers,” S&P said.

For 2023, S&P is now projecting Tesla will deliver 2 million cars, above their previous estimate of 1.5 million. The agency says Tesla will be able to sustain its market share with these kinds of figures, even in the face of increasing competition from other automakers, including in Europe and China.

Looking ahead however, S&P says Tesla needs to “expand its range of products to contend with a substantially higher number of models from established global automakers and start-ups by the end of 2025.”

S&P also cited Tesla’s newest factories, Giga Texas and Giga Berlin, as a reason for the upgraded rating, saying they “position Tesla well for the production ramp-up of its future products, including its Cybertruck.”

S&P may lower Tesla’s rating in the future if:

  • Tesla adopts a more aggressive financial policy with respect to shareholder distributions, growth of its captive finance operations or other business segments, and acquisitions, such that financial cushion reduces materially; or
  • It cannot sustain solid FOCF due to slowing growth or higher-than-expected spending.

They may also raise their rating under these scenarios:

  • Tesla adopts a more aggressive financial policy with respect to shareholder distributions, growth of its captive finance operations or other business segments, and acquisitions, such that financial cushion reduces materially; or
  • It cannot sustain solid FOCF due to slowing growth or higher-than-expected spending.

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