Standard & Poor's has given Tesla Motors Inc. below investment grade corporate debt rating of B- (junk), saying that the carmaker represents a vulnerable investment. S&P said the outlook for the rating is “stable.” The debt rating, which is way below investment grade, is unsolicited as the rating firm doesn't have a rating agreement with Tesla.
S&P, however, said there was enough investor interest to warrant with the rating. S&P said that Tesla has liability for $2.9 billion in convertible bonds. Companies usually are given junk-bond ratings if it has been determined that there is an increased risk of default.
This could be good news for investors, since junk bonds usually entail higher returns as junk-rated companies need to pay higher interest rates for access to investors’ capital.
S&P remarked that its "vulnerable" business risk profile assessment reflects the carmaker’s narrow product focus, concentrated production footprint and small scale relative to its rivals. The rating service said that Tesla has limited visibility on the long-term demand for its offers as well as limited track record in handling execution risks.
In case of a default, S&P estimated that investors likely would recover only 30 to 50 percent of their investment in Tesla.
For this year, the carmaker has so far issued $920 million of 0.25% unsecured convertible senior notes due 2019, and $1.38 billion of 1.25% unsecured convertible senior notes due 2021. The carmaker already issued $660 million unsecured convertible senior notes due 2018 in May 2013