After analyzing its potential for default, Standard & Poor, has designated Tesla stock as a B-, or “junk” rating. That’s the same S&P that assigned “AAA” credit ratings to bundles of sub-prime loans that helped crater the economy in 2008, as well as downgrading America’s credit rating on the heels of a manufactured debt showdown by the Republicans.
According to S&P, Tesla’s “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” makes it “vulnerable” to the threat of default or bankruptcy. As such, S&P rates Tesla as a junk bond, six notches below an enviable AAA rating. Following a meteoric IPO that saw prices skyrocket from $17 a share to over $264 a share, other investment bigwigs at Morgan Stanley have remained bullish on Tesla, which they say could come to dominate almost the entire auto industry.
For now, Tesla remains one of the hottest stocks on Wall St., with shares opening today at around $210 and stabilizing there. Seems expensive, but should Tesla achieve Apple levels of success, that could be chump change compared to the potential payoff. Then again, Tesla is still in the earliest stages of becoming a force to be reckoned with in the automotive world, and if the Model X and Model E aren’t just as impressive as the Model S, it opens the door for other automakers to make a move in the growing electric car market.
So yeah, take S&P’s rating with a table shaker full of salt…but don’t discount the fact that Tesla still has a lot of hurdles between it and long-term, sustainable success.