Should Tesla's Debt Be Rated 'Junk'? - Real Time Insight

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Ratings agency Standard & Poor's recently assigned Tesla ( TSLA ) an unsolicited "B-" credit rating. This is well below investment grade, as you can see here:

S&P gave Tesla a "vulnerable" business risk profile due to its "narrow 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."

S&P also believes that Tesla's business risk profile is "constrained by [its] niche and independent market position , compared to its significantly larger and stronger peers, and its very limited product range and operating diversity."

Standard & Poor's expects " global competition for alternative fuel vehicles to intensify over the next few years as competitors penetrate this market through improved products . S&P also believes that there is considerable uncertainty in Tesla's long-term prospects and believe that the company is less likely (compared to larger, more established automakers) to successfully adapt to competitive and technological displacement risks over the medium to long term."

The review wasn't all bad though. S&P gave Tesla a "stable" near-term outlook, reflecting the company's recent improvement in gross margins and the fact that the company will likely generate positive operating cash flow this year "while maintaining sufficient liquidity."

Shares of Tesla were down on the news. But the stock is up nearly +40% year-to-date and +115% over the 52 weeks year.

Do you agree with Standard & Poor's assessment of Tesla?

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Stocks
Referenced Symbols: F , GM , TSLA

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