Tesla Up By 1.8% Following ‘Positive’ Debt Outlook Revision By S&P
Electric car maker Tesla had a strong third quarter, as it reported $6.3 billion revenue and $1.86 adjusted earnings per share. The profitable earnings went against Wall Street estimates which had expected a loss of 42 cents per share. The $6.3 billion revenue that Tesla (NASDAQ:TSLA) reported was down from the $6.8 billion the company had reported in the year-ago quarter. This was due to a lower average selling price due to the Model 3. Now, S&P Global has good news for Tesla, as the firm has revised the electric car maker's debt outlook. Take a look below for more details.
Tesla Bond Outlook Revised To Positive In Light Of Higher Anticipated Demand For Vehicles & Manufacturing Efficiencies
The big news that came out of Tesla's recent earnings call is the company's GAAP gross margin. Tesla managed to propel this to 22.8% in its recent quarter, with the jump highlighting an increase in manufacturing efficiencies. Despite attempting to revolutionize the car industry with its electric vehicles, Tesla's problems with manufacturing are well-known. These, combined with an inability to scale operations made S&P assign the company a B- rating four years back.
Now, Tesla's fortunes appear to be reversing. In an upgrade, Standard & Poor believes that Tesla (NASDAQ:TSLA) can meet investor obligations better than it could in the past. The firm has revised Tesla's debt outlook to Positive. The revision comes in light of stronger cash flow, improved manufacturing efficiencies and higher demand anticipation for vehicles.
"The positive outlook reflects an increased likelihood that Tesla's credit metrics will improve more than our base-case projection because of higher demand and manufacturing-related efficiencies," believes S&P Global.
Tesla's also got big plans for its current quarter. The company has started an aggressive promotion campaign in China, where Tesla's Gigafactory 3 is also ready for production. It also plans to double its repair stations in China and take the total count of charging stations in the country to 362. These moves will hamper Tesla's free cash flow, and so are something that everyone needs to be on the lookout for at the company's fourth-quarter 2019 earnings. The company reported positive cash flow of $371 million during its latest quarter.
Tesla (NASDAQ:TSLA) shares are up by 1.8% at the time of writing after the market opened today, with no significant trading taking place. One year return for the stock is negative 2.66% and a price-to-earnings ratio of 57.7 factors in the fact that Tesla still has a long way to go before operating normally. An abnormally high P/E ratio suggests that investors expect a company to grow earnings significantly in the future, and with the Model 3, Tesla might just turn things around soon.
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Disclaimer: This news piece does not constitute investment advice and the author does not have a stake in Tesla. He doesn't plan to acquire one in the near future either.