Though still riding high all over equity markets, Tesla’s debt offerings took a severe hit in status when Standard & Poor’s bestowed a rating of junk status due to increased possibility of default by the EV automaker.
Automotive News quotes Standard and Poors
[Tesla has a] arrow product focus, concentrated production footprint, small scale relative to its larger automotive peers, limited visibility on the long-term demand for its products and limited track record in handling execution risks that could arise in managing high volume parallel production.
The automaker issued $920 million of 0.25 percent unsecured convertible senior notes due in 2019, another $1.38 billion in 1.25 percent unsecured convertible senior notes with a date in 2021, and a previous issue of such notes due in 2018 totaling $660 million. The notes are being used to fund two Gigafactory projects and further development of the Gen III EV platform meant to underpin the compact vehicle formerly known as the Model E.
In the meantime, the rating company expects the debt to remain stable over the next 12 months in part to improvements on the company’s gross margins. The rating also offers the potential for high returns for investors who know the risks and rewards the status entails.
Correction: An earlier version of this story incorrectly termed Tesla’s stock as “junk”, when it should have referred to Tesla’s debt offerings. We regret the error.