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Why Tesla Stock Jumped on Thursday

By Daniel Sparks - Dec 17, 2020 at 8:39PM

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The electric-car maker's improving financials are winning the approval of this key credit rating agency.

What happened

Shares of electric-car maker Tesla ( TSLA -6.42% ) rose sharply on Thursday. The stock ended the trading day up 5.3%, trading at nearly $656.

The growth stock's gain was likely caused by a combination of an overall bullish day in the stock market and S&P Global's ( SPGI -1.12% ) move to increase its credit rating on the automaker's debt.

Three vehicles outside of Tesla's factory.

Image source: The Motley Fool.

So what

Ahead of S&P Global's move next week to include Tesla stock in the S&P 500 for the first time, S&P Global changed its rating of Tesla's debt to BB, up from BB-. S&P Global noted that the company's "mounting liquidity has substantially reduced its financial risk." 

This news follows Tesla's recent capital raise. Earlier this month, Tesla entered into an agreement to issue up to $5 billion worth of common stock. This would bolster Tesla's cash position by an impressive 34%.

Also likely helping the stock on Thursday was the market's big move higher. Highlighting optimism in the market, the S&P 500 rose 0.6% to a record high.

Now what

Tesla is set to be added to the S&P 500 before market open. While it's possible that this could provide a near-term boost to the stock, investors shouldn't count on it.

What's more important is that Tesla meets its full-year guidance for 500,000 deliveries and that it continues to provide evidence that this is just the tip of the iceberg for its long-term growth story.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Tesla, Inc. Stock Quote
Tesla, Inc.
$1,014.97 (-6.42%) $-69.63
S&P Global Inc. Stock Quote
S&P Global Inc.
$455.82 (-1.12%) $-5.15

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