WASHINGTON: Shares in upstart electric car maker Tesla fell 2.5 percent yesterday after Standard & Poor’s gave the company’s bonds a “junk” rating.
Despite the rave reviews and strong sales of its lithium-ion battery-driven luxury vehicles, S&P gave Tesla debt a “B-“ grade with a stable outlook in a first-time rating, published on Tuesday.
The agency cited the still-limited market for its $70,000 cars and the likelihood the company’s now-exclusive niche will be challenged by competitors.
Even though Tesla has a huge waiting list for its Model S and for the coming Model X, S&P called the company “vulnerable” for its “narrow product focus”, small scale compared with major automakers, and questions about the long-term demand for its high-end cars.
S&P also said the company needs to prove it can handle the challenges of ramping up production as it rapidly expands output.
“We expect global competition for alternative fuel vehicles to intensify over the next few years as competitors penetrate this market through improved products,” S&P said in a statement.
“We believe 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.” In its favour, S&P said, are Tesla’s strong reputation in product quality, design and technology,and well-known brand, which allow it to charge a premium.
AFP
