By on March 28, 2018

 

Bloomberg

Tesla has been Wall Street’s fair-haired boy as the electric car startup’s share price soared over the past few years. Production figures have not kept pace with Tesla’s market cap, and now problems getting assembly up to speed on the company’s vitally important Model 3 and concerns about its cash burn have resulted in a downgrade of its credit rating from Moody’s Investor Service. That report from Moody’s was issued late on Tuesday.

When trading began on Wednesday morning, Tesla stock opened at $264.76, down 5 percent from the day before. That is almost 14 percent lower than it was at the beginning of the week, and 31 percent lower than in September of 2017, when Tesla’s stock price apparently peaked at $385 a share.

Tesla’s overall credit rating was dropped from B2 to B3, which is six grades below investment level, and Moody’s said its outlook on the company is “negative.” Moody’s analyst Bruce Clark said, “Tesla’s ratings reflect the significant shortfall in the production rate of the company’s Model 3 electric vehicle. The company also faces liquidity pressures due to its large negative free cash flow and the pending maturities.”

Moody’s report went on to say, “Tesla’s ratings reflect the significant shortfall in the production rate of the company’s Model 3 electric vehicle. Tesla’s rating could be lowered further if there are shortfalls from its updated Model 3 production targets.”

The $1.8 billion in senior unsecured bonds that Tesla issued in August 2017 were downgraded by Moody’s from B3 to Caa1, well into junk bond territory — what the firm considers “very high credit risk, poor standing.” That resulted in a drop Tuesday evening of 3.5 cents on the dollar to 89 cents. At the time that debt was issued, demand was strong enough that Tesla only offered 5.3 percent interest, a record low for Tesla bonds. Now investors seem to be turning away from the EV startup.

The automaker continues to miss production level targets. Bloomberg estimates Tesla is now building about a thousand cars a week after saying that it would hit 2,500 units weekly by this time, the end of the first quarter of 2018. Tesla head Elon Musk predicted Model 3 production would hit 5,000 vehicles a week sometime this year.

In addition to failing to meet production goals, Moody’s said Tesla is facing financial hurdles. The credit rating agency claims the automaker will have to soon “undertake a large, near-term capital raise in order to refund maturing obligations and avoid a liquidity short-fall.” More than $2 billion will reportedly have to be raised by Tesla to meet those needs. The bonds in question mature in 2025.

Moody’s pessimism was echoed by Hitin Anand, senior analyst at CreditSights. “Why would anybody buy the bonds? There is just no reason to buy the bonds. You’re taking up equity-like risk and all you’re getting is a 5.3 percent coupon.”

Anand said that Tesla could possibly seek secured loans or issue notes convertible to equity in order to meet cash needs.

Tesla critics’ bleak forecast was countered by venture capitalist Jason Calacanis, who owns shares in the company (as well as a Model 3 he somewhat contradictorily claims to daily drive in self-driving mode). “Tesla is going to come roaring back,” Calacanis told CNBC. “Everyone who loves Tesla products can’t shut up about them because they are the greatest cars on the road.”

Greatest cars on the road or not, if Tesla cannot get production of the Model 3 up to anticipated levels, you can expect its credit rating and stock price to drop further.

[Image: Bloomberg]

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51 Comments on “Tesla Stock Price Dives After Moody’s Downgrades Credit Rating Over Model 3 Delays, Liquidity Concerns...”


  • avatar
    FreedMike

    This news is electrifying.

  • avatar
    FAHRVERGNUGEN

    Even the man in the moon has one.

  • avatar
    sirwired

    What I don’t get is why Musk keeps providing “deadlines” to get Model 3 production up to snuff? He’s already blown past his deadlines so much that he has absolutely zero credibility at this point.

    If I were Tesla, I’d just issue a statement along the lines of “We are producing our groundbreaking and innovative vehicles as fast as we can, consistent with our goals for product quality.” and then proceed to simply post numbers for cars shipped every week.

    And the tragic part is that if he hadn’t tried to stress the whole company to meet these wholly-arbitrary (and un-meetable) deadlines, he might very well be in a much better position. Trying to fix things in the middle of a major production push takes a lot longer than just getting it right the first time.

    • 0 avatar
      Master Baiter

      “What I don’t get is why Musk keeps providing “deadlines” to get Model 3 production up to snuff?”

      As I’ve heard Musk lament, Tesla is a publicly traded stock; they are legally required to provide forward looking guidance to investors.
      .
      .

    • 0 avatar
      tnk479

      Well, that’s hard to say with any certainty. Tesla was all to eager to collect 500,000 deposits way too far in advance. If they needed the money, that is terrifying. If they don’t need the money then the move made zero sense.

  • avatar
    SCE to AUX

    The Model 3 is Tesla’s future, and their lifeline to it.

    Fans of “The Wrong Trousers” will remember the chase scene in which the hero dog Gromit lays his own railroad track to keep the train going:

    “https://www.youtube.com/watch?v=jrmZIgVoQw4”

    Tesla is on that train.

  • avatar
    mmreeses

    I’m surprised TTAC hasn’t done a post about that sf Tesla X that slammed into an off-ramp divider at full speed at 4pm last weekend, killing the driver. guess that the car was on autopilot?

    or maybe you guys did and i missed it.

    Nothing in the news about the driver (unless i missed it)— maybe Tesla’s lawyers got the family to sign a settlement+NDA already?

  • avatar
    Sub-600

    The Wehrmacht went through Europe faster than Tesla’s manufacturing equipment has. Where is it? Is it still on the loading dock? Nevada is a long haul, they’d better get started.

  • avatar
    indi500fan

    I know Musk and Straubel think they the smartest kids on the planet, but a much better approach would have been to replace GM as Toyota’s partner at Fremont. All they proven so far it that it doesn’t require UAW involvement to have a screwed up car factory.

    • 0 avatar
      SCE to AUX

      I think Mr Musk has micromanaged everything, including design, vendors, production setup, testing, and of course, messaging.

      Personally, I believe they have probably hired all the right people – not just a bunch of Silicon Valley gamers – but Mr Musk has handcuffed them all along.

      • 0 avatar
        mcs

        I think the problem is that Musk likes to set impossible deadlines as a motivation tool. I’ve known people that like to practice that technique and it never ends well.

        That being said, we really don’t know if they’ve met the production goals for March yet. Like the article says, it’s a Bloomberg estimate, not a reported fact. I saw another estimate that put it at 2,000 a week a week or so ago. It could be low as 500, or it could be 2,500. We just don’t know. It’s an estimate. However, I think the stock price does need to go down. It’s been way too high for way too long.

        • 0 avatar
          FreedMike

          That works OK, as long as you’re the only person you’re holding to that standard. It doesn’t work at all with other people.

        • 0 avatar
          Asdf

          If Musk has a habit of setting impossible deadlines, then either he doesn’t seem to care about them being met, or his deadlines don’t concern things that are important. Why else would he allow Teslas that are inherently defective in their design, to be launched in the marketplace at all?

          If Musk *were* in fact serious about building EVs, he would have made sure that every single Tesla ever built would not take more than 5 minutes to charge, would have a range at least as good as that of an ICE-powered car, and would not cost more than an ICE-powered car without subsidies. Since he’s ignored these vital aspects, crucial to the entire viability of the concept of EVs, he’s proven not to be a serious player in the automotive world. And for that, Tesla deserves to go bankrupt, or at least to get a competent CEO and/or owner to take over, someone who sees EVs as relevant to the future and who does what it takes to make them commercially and technologically viable instead of battery-powered shams on wheels.

          • 0 avatar
            civicjohn

            Asdf, good try. When is your delivery date?

            EM brings this crap on himself – can’t he just STFU and ship cars (and the odd flamethrower)?

            Edit: I’d buy SpaceX in a heartbeat.

          • 0 avatar
            ClutchCarGo

            @Asdf, do you never tire of claiming that Tesla cars are fundamentally defective because they do not match ICE cars in range, fueling time and cost? The fact is that Teslas, like all EVs, are different kinds of vehicles with different qualities than ICE vehicles. Do you also believe that an Armani suit is defective because it doesn’t offer as much range of movement as cotton overalls and you can’t just put it in the washing machine for cleaning?

          • 0 avatar
            HotPotato

            Asthma, cancer, birth defects — it’s far better to have those things than to have long recharging times and missed deadlines.

            You certainly are an innovative thinker.

          • 0 avatar
            28-Cars-Later

            Logic clearly dictates that the needs of the many outweigh the needs of the few.

            Oh and your golf cart is clearly going to fix all the other health maladies which cause those things: zero exercise, artificial HFCS spiked in everything, lack of nutrients in soil, potassium bromate (banned worldover) in bread and some sodas, aspartame, nearly 3000 areas with double the lead in water than Flint, all of the wonderful poisons put in groundwater from fracking, oh and let’s not forget eighteen unregulated chemicals in tapwater and one known neurotoxin, Flouride.

            My points from several years ago:

            Per NIH: “Although very high levels of fluoride (0.16-0.3 mol/L) will kill bacteria, there is little evidence that fluoride causes dramatic changes in the number of species found in plaque or their relative concentrations.”

            http://www.ncbi.nlm.nih.gov/pubmed/2179326

            So it can kill bacteria in the proper concentrations but there remains little evidence it affects changes in the number of species or concentrations of plaque? Ha.

            Personally I’m more concerned about the long con of dumping a neurotoxin into the water supply at 0.8-1.2mg/g with no recourse by the citizenry while NOT also including cheap benign vitamins such as C even at a similar low dosage. Think about it, even if this poison were somehow beneficial, why is it and nothing else beneficial being artificially added?

            ““Fluoride seems to fit in with lead, mercury, and other poisons that cause chemical brain drain,” Grandjean says. “The effect of each toxicant may seem small, but the combined damage on a population scale can be serious, especially because the brain power of the next generation is crucial to all of us.””

            http://www.hsph.harvard.edu/news/features/fluoride-childrens-health-grandjean-choi/

            I also love this:

            “People with levels between normal levels and those required for skeletal fluorosis tend to have symptoms similar to arthritis.[1]” So somewhere between something which previously only existed in certain parts of nature -so normal being none excluding outliers- and severe being skeletal fluorosis, one might suffer from symptoms of arthritis. They are all but saying fluoride tends to cause arthritis symptoms.

            http://en.wikipedia.org/wiki/Halogen

            EDIT: I was in another thread which led me to a paper: “Curcumin attenuates neurotoxicity induced by fluoride: An in vivo evidence”. Evidently mice were dosed with F (120 ppm) daily for 30 days and then treated with Curcumin. The reason I include this here is because this is further proof fluoride is a known neurotoxin to science but sure we’ll dose you nearly a mg/gal every day for your whole life you’ll be fine, right?

            http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3969660/

            Oh and while we are on the subject of drinking water:

            “Traces of 18 unregulated chemicals were found in drinking water from more than one-third of U.S. water utilities in a nationwide sampling, according to new, unpublished research by federal scientists.

            Included are 11 perfluorinated compounds, an herbicide, two solvents, caffeine, an antibacterial compound, a metal and an antidepressant.”

            http://www.scientificamerican.com/article/unregulated-chemicals-found-in-drinking-water/

            https://www.livescience.com/36206-truth-potassium-bromate-food-additive.html

            “In 1964, an expert committee administered by the World Health Organisation and Food and Agriculture Organization started evaluating potassium bromate. In 1983, it temporarily accepted a limit of 75 ppm provided there are negligible residues in the end product, on the understanding that all bromate gets converted into bromide during baking. This limit was later reduced to 60 ppm. After long-term studies, potassium bromate was considered a ‘genotoxic carcinogen’. In 1992, the committee decided that using potassium bromate as a flour treatment agent was “not appropriate”, also considering there were alternatives. In 1999, the International Agency for Research on Cancer (IARC) classified potassium bromate as possibly carcinogenic to humans. In 2012, the Codex Alimentarius, an international food safety reference agency run by the WHO and FAO, formally withdrew specifications of potassium bromate in line with the expert committee view.”

            https://www.livemint.com/Politics/CP96fUmiZTTNPSTLFLoyML/Six-things-to-know-about-potassium-bromate-and-its-controver.html

            https://www.snopes.com/fact-check/mountain-dew-contain-chemical-known-bvo/

            http://www.nydailynews.com/life-style/eats/5-foods-banned-u-s-article-1.2409095

            https://www.reuters.com/investigates/special-report/usa-lead-testing/

  • avatar
    vehic1

    indie500fan: I see, you’re suggesting that because battery-electric isn’t practical for ALL applications (like Jumbo jets) – therefore, it isn’t desirable for trucks, cars, golfcarts, electric toothbrushes, etc.
    Yes, more fossil-fuel pollution is just great!

    • 0 avatar
      civicjohn

      vehc1,

      Really? We have ALL read this stuff. $255 stock price currently, make sure and post that everywhere.

      These are the days when “pro” shorts make the moves they have to do. EM knows that.

    • 0 avatar
      Ridgerunner

      What percent of electricity is generated by fossil fuels? 62.7% (coal and natural gas both at about 30%) with another 20% nuclear and the remainder renewable. An electric vehicle is not zero emission, it is zero emission at point of energy use. Please understand the truth and not the hype.

      • 0 avatar
        HotPotato

        In literally every state in the US a grid-powered EV is cleaner, often radically cleaner, than a gasoline-powered car. This has been researched to death. Read up.

  • avatar
    civicjohn

    Well, TTAC has already been accused of “clickbaiting” by the sheer mention of the brand.

    Bloomberg, CNBC, et.al have already thrown that bait in the water. As of the last hour, TSLA can’t provide any crash data, but were very forthcoming in the number of trips made by the crash site in the last week in other news from their AP data. It would provide a lot of clarity if they would be more specific on the data acquisition side.

    TSLA = $348 as of 2/28
    TSLA = $257 as of 3/28

    Most every stock has taken a dump in the last week, but not as dramatic as this. If you are long TSLA, I hope they come close to their shipment numbers. I’m not a TSLA “short”, I don’t borrow shares, I put my money on the line, win or lose. However, they NEED to hit the guidance given on the Q4 earnings call.

    • 0 avatar
      Big Al from Oz

      civicjohn,
      Good advice. I think some Tesla bonds are due the end of this year and more early’ish next. $1.25 billion worth.

      Tesla has been downgraded again.

      It doesn’t look good.

      Maybe TTAC should start a Tesla deathwatch.

  • avatar
    EBFlex

    I can’t tell you how amazing this is to see their stock tank. It should have happened a long time ago.

    The company is garbage.

    • 0 avatar
      tnk479

      They are producing cars that quite evidently there is a market for, but, they have tried to grow the company aggressively and they are structurally bankrupt.

    • 0 avatar
      gmichaelj

      While I’m not sure the company is garbage, I agree that there is an awful lot of hype surrounding this firm. But don’t count on a “rational” market to “correct” the price of this stock. You might still see the price rise. Many investors hold on to their “beliefs” in the face of contrary evidence.

  • avatar
    jkross22

    Still seems likes it’s overpriced by 80%.

  • avatar
    Jerome10

    Tesla deathwatch should have started at least a year ago.

    $20 Buick is still alive and kicking when Tesla goes bankrupt or gets bought out.

    • 0 avatar
      jpolicke

      Agree. Apparently anyone in the world can do build quality better than Tesla, they abuse their monopoly on parts and service, they abuse their customers with NDAs just to get their cars fixed.

      Soon the incentive money will run out. The real car companies will bring out BEVs with competitive specs and it will be game over for Tesla.

  • avatar
    Land Ark

    This certainly has been an unpleasant slide. I don’t like watching my money dissolve in front of my eyes.

    The last two weeks haven’t been very good in general, but the dump Tesla has had is worrisome. I’m going to hang on hoping for the best when they are in full on Model 3 delivery mode.
    Then I’ll probably move it into an index fund.

  • avatar
    indi500fan

    From John Thompson, a hedge fund guy:

    “As a reality check, Tesla is worth twice as much as Ford [estimate of the enterprise value of both companies], yet Ford made 6 million cars last year at a $7.6 billion profit while Tesla made 100,000 cars at a $2 billion loss,” Thompson said. “Further, Ford has $12 billion in cash held for ‘a rainy day’ while Tesla will likely run out of money in the next 3 months. I’ve never seen anything so absurd in my career.”

    • 0 avatar
      brandloyalty

      View it as a venture capital matter. And doesn’t Tesla do a lot more than make cars?

      • 0 avatar
        indi500fan

        True. So it probably should read Tesla lost $2 billion on 100,000 cars and XX Powerwalls and XX solar panels. (I don’t know what those numbers are.)

    • 0 avatar
      EquipmentJunkie

      Thank you for those words from John Thompson, indi500fan. His quote has been my gut reaction for months, but I didn’t have the numbers to back it up…nor did Musk.

    • 0 avatar
      FreedMike

      In essence, a stock buy is a bet. In Tesla’s case, investors are betting the company takes off (or, more likely, gets bought out by someone like Ford). In essence, the stockholders are gambling that the company becomes the next Google, or Apple. The people buying this stock are looking for a massive return. Someone buying Ford stock wants a safer bet.

      In that sense, the high stock price is logical.

      I’ve long thought that Tesla’s most likely future is as a buyout or merger target for a larger carmaker.

    • 0 avatar
      HotPotato

      Musk himself said the stock was overvalued. No surprise here.

  • avatar
    Rich Fitzwell

    The usually useless SEC may have sent a message to Elon Musk last week with the news they are going after Elizabeth Holmes of Theronos for “massive fraud”

  • avatar
    Tstag

    Tesla investors should be worried. The competition is coming thick and fast. Jaguar are now attacking the Model X and the new electric XJ will go after the Model S. Tesla can trade off it’s Apple like status for a while yet but big boys are coming and will have them for lunch. Jaguar have already sold 20,000 I paces to one company. Soon they will really enter the publics mind and because the IPace is cheaper and better looking than the model X and let’s face it probably even more reliable I can’t help but wonder how long Tesla’s got to make a profit.

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