Cars and Drivers

Tesla Stock Upgraded on Massive $20 Billion Cash Balance

Douglas A. McIntyre

Published: December 19, 2020 7:12 am

Last Updated: December 21, 2020 9:59 am

Tesla Inc. (NASDAQ: TSLA) jumped to almost $700 a share as it was added to the S&P 500. Its market cap jumped to $660 billion. That puts it well ahead of both Walmart and Berkshire Hathaway. The price has surged despite the fact that it will only sell about 500,000 cars this year. A fraction of global leader Volkswagen, which will sell close to 10 million.

Tesla’s shares were also upgraded by Standard & Poor’s, partially due to cash on the balance sheet that the rating agency believes will be nearly $20 billion by year-end. Tesla approached bankruptcy in 2017. According to CNBC, founder Elon Musk admitted: “Closest we got was about a month. The Model 3 ramp was extreme stress & pain for a long time — from mid-2017 to mid-2019. Production & logistics hell.”

Standard & Poor’s issued its new opinion on Tesla’s credit rating in a note with the title “Tesla Inc. Ratings Raised To ‘BB’ On Mounting Liquidity; Outlook Positive.” Among other things, it said:

S&P Global Ratings today took the rating actions listed above. Equity share sales throughout 2020 have increasingly boosted liquidity and substantially curtailed the company’s financial risk. On Dec. 9, Tesla completed the sale of $5 billion of common stock through its at-the-market offering program. The company raised about $7.3 billion cash in two previous share sales this year. We expect cash on the balance sheet to exceed $19 billion at the end of 2020.

The cash balance will not settle the debate about Tesla’s future. It continues to be challenged by the early but growing electric vehicle programs of much larger rivals, particularly VW. The world’s largest car manufacturers plan to pour billions of dollars into EV design, production, and marketing.

Some forecasts put global EV sales at 20 million by 2030. More and more states and even countries will mandate that EVs become part of efforts to cut global air pollution. However, the $20 billion may not protect Tesla from an onslaught of competition.