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Tesla Gets Unsolicited S&P Junk Rating on ‘Niche’ Position

By Matt Robinson
May 27, 2014 6:30 PM EDT 357 Comments

Tesla Motors Inc. (TSLA), the electric-car company whose stock climbed fourfold last year, was slapped with a junk credit rating by Standard & Poor’s because of “considerable uncertainty” about its long-term prospects.

The unsolicited B- ranking, six levels below investment grade, reflects a business “constrained by Tesla’s niche and independent market position,” S&P, the world’s largest credit-rating company, said today in a statement. Palo Alto, California-based Tesla has a smaller scale relative to peers, a narrower product focus, and limited demand for its products, said S&P, which said its outlook on the rating is “stable.”

The youngest publicly traded U.S. automaker has tapped debt markets without a ranking from any of the major ratings companies, according to data compiled by Bloomberg. Tesla, headed by billionaire Elon Musk, raised about $2.3 billion in March selling convertible debt to fund a battery factory to make more affordable models.

“We believe there is considerable uncertainty in Tesla’s long-term prospects,” S&P analysts Nishit Madlani, Dan Picciotto and Joseph Lin wrote in the report. Compared with larger, more established automakers, the company is less likely “to successfully adapt to competitive and technological displacement risks over the medium to long term,” they said.

The rating was “developed independently by their analysts without any feedback from Tesla on our growth plans,’ Liz Jarvis-Shean, a spokeswoman for the carmaker, wrote in an e-mailed statement.

The gains in Tesla shares slowed this year after the company reported first quarter Model S sales this month that fell below top-of-the-range analyst estimates.

Shares have risen 41 percent this year to $211.56.

To contact the reporter on this story: Matt Robinson in New York at mrobinson55@bloomberg.net

To contact the editors responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net Caroline Salas Gage

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