Despite moving lower this morning in line with the overall market, Tesla (NASDAQ:TSLA) stock turned toward the green this afternoon. The move, which sees TSLA stock just marginally higher at the time of this writing, comes on the back of a key upgrade.
Today, S&P Global announced that it has finally upgraded Tesla bonds from a “junk” rating to “investment grade.” This move, which sees the company’s unsecured bonds move to BBB from BB+, could incite more institutional investor interest in TSLA. Given where capital markets are right now, the ability to raise capital is always a good thing. That goes double for Tesla, which operates a number of capital-intensive businesses.
Of course, there’s still the ongoing Twitter (NYSE:TWTR) saga which could negatively impact TSLA stock. Should CEO Elon Musk be forced to sell more stock to acquire the social media giant, investors could be due for more near-term pain. At least, that’s what many experts seem to think.
Let’s dive deeper into the current state of Tesla and make some sense of the news.
TSLA Stock Rallies on Key Bond Upgrade
Today’s key bond upgrade for Tesla is a big deal. This announcement paves the way for Tesla to potentially raise more debt, relying less on shaky equity markets for capital moving forward.
Indeed, Tesla is now a profitable company producing real cash flows. Many believe the company can sustain itself on its own. But as we’ve seen during previous recessions, automakers can come under hard times when folks can’t afford vehicles. Accordingly, with Tesla vehicles priced at a premium, we’ll have to see if the company needs another capital raise.
If it does, perhaps Tesla will choose to tap the bond markets, which have certainly been less-enticing of late to those looking to raise capital. Higher bond yields, driven by rate hikes for Treasury bonds, make raising capital more expensive. That said, a better rating ensures that Tesla could potentially raise capital at more favorable rates. If push comes to shove, that’s a great thing for Elon Musk’s core company.
Of course, there’s likely going to be some near- to medium-term overhang from the Twitter deal. Whether it’s the potential stock sales or the distraction that being the CEO of yet another company provides, there are reasons why many Tesla investors hope the acquisition will fall through. Right now, it looks like Elon Musk has another project to do in his spare time. Whether that’s good or not remains to be seen.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
