Tesla Motors, Inc. (TSLA) has received a “B-” credit rating from Standard & Poor’s Ratings Services. The rating is six notches below investment grade and falls in the junk category. This is an unsolicited rating with no input from Tesla regarding its future plans.
S&P assigned a stable outlook to the rating, which indicates low possibility of a rating upgrade or downgrade in the near term. The outlook is based on the projections that gross margins of Tesla will continue to improve over the next year, as the company works to fulfill the demand for Model S.
The low credit rating is a result of Tesla’s limited market share, small operating scale compared with other automakers, focus on a niche product segment and uncertainty related to demand in the long term. Moreover, the electric carmaker might face difficulty in managing risks related to future technological displacement and competition. Competition in the field of green vehicles is expected to increase in the future, which will hamper Tesla’s prospects. According to S&P, these factors raise doubts about the long-term prospects, despite the positive aspects of the company.
Tesla raised $2.3 billion from convertible notes issue in Mar 2014. Of these, notes worth $800 million are due in 2019 and the remaining $800 million notes will mature in 2021. The company issued the notes to partly finance its planned Gigafactory.
The automaker currently carries a Zacks Rank #4 (Sell). Fox Factory Holding Corp (FOXF), a Zacks Rank #1 (Strong Buy) stock, is currently performing well in the automobile industry.