Fund Manager Says Tesla Could Get Debt Rating Upgrade This Quarter: Why This Would Be A Big Deal

Tesla, Inc.’s TSLA debt rating is likely to get a lift in the near term, providing the company with some advantages, Future Fund founder Gary Black said in a tweet.

What Happened: Standard & Poor’s and Fitch could upgrade Tesla’s debt rating to investment grade this quarter, Black said. This, according to the analyst, would forever cement Tesla’s position as a blue-chip growth stock.

Additionally, institutional investors, which do not buy stocks below investment grade, would gain access to Tesla stock, he added. Black noted that the Elon Musk-led company has $19 billion in cash and zero debt.

Tagging Tesla's Investor Relations Head Martin Viecha, the fund manager said the electric vehicle maker is expected to generate free cash flow of $9 billion in 2022 and $20 billion in 2023.

Black was commenting on an article carried by Barron’s that said analysts’ "knee-jerk reaction" in the wake of Musk’s statement that the Giga Berlin and Giga Austin were “money furnaces” was unwarranted. The company reported better-than-feared results, the report added.

Beating Toyota Motor Corporation TM is what it could take for Tesla to earn a debt upgrade, given the Japanese company is the world’s largest automaker in terms of volume, the report added.

Related Link: Tesla Posting Record-Breaking H2 Deliveries 'Somewhat' Out Of Elon Musk's Control: Munster Shares Insights From Q2 Call

Why It’s Important: Toyota’s debt is rated A1 and A+, respectively at Moody’s and S&P. These agencies rate Tesla’s debt rating at Ba1 and BB+, respectively, suggesting the company’s rating is at junk bond level, or — in other words — its debt is speculative.

The argument that Tesla’s debt rating could have to do with the cyclical nature of the auto industry doesn't hold, as General Motors Corporation GM, Volkswagen AG VWAGY have investment grade ratings, former Moody’s credit officer Alexandra Merz said, Barron’s reported.

Musk attaches less significance to the junk bond ratings, reasoning in the past that Tesla doesn’t need debt and therefore the ratings do not impact the company. All the same, he called the predicament “silly.”

Price Action: Tesla closed Friday’s session up 0.20% at $816.73, according to Benzinga Pro Data.