Tesla Scores Junk Bond Rating from S&P

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Tesla Motors, Inc. (NASDAQ: TSLA) is not exactly the sort of company you think of with a corporate credit rating call. Standard & Poor’s has issued a rating of “B-” to Tesla, but investors should know that this is considered an unsolicited rating. This is also a rating that is considered a “Junk Bond.”

After issuing $660 million in unsecured senior convertible notes in May 2013, Tesla issued $920 million in unsecured convertible senior notes due in 2019 and $1.38 billion of unsecured convertible senior notes maturing in 2021.

S&P said about the rating being unsolicited,

“We believe there is sufficient market interest in the company’s obligations to initiate analytical coverage.”

Another issue is that the Outlook is listed as Stable. This implies that, barring any major new developments, S&P will not likely be upgrading Tesla’s corporate credit rating any time soon. S&P said on the outlook,

“The stable rating outlook reflects our expectation that the company will sustain its recent improvement in gross margins over the next twelve months as it fulfills global demand for its Model S vehicle.”

Ongoing risks under a “vulnerable” risk profile is based in part on a narrow focus, small scale against peers, limited visibility on long-term demand, and a limited track record.

The biggest issue is perhaps the most obvious – S&P expects that the global competition for alternative fuel vehicles will intensify over the next few years.

All in all there are many positive points highlighting its strength, branding, and opportunity. This still comes with a risk, and the reminder that credit ratings agencies are not making stock analyst calls. They aim to inform credit investors about the risks associated with their long-term creditworthiness rather than move up and down with the whims of the stock market.

Tesla shares were up 1.8% at $210.97 with close to an hour left of trading on Tuesday. The 52-week trading range was $88.25 to $265.00.