Here's more from today's S&P note regarding its rating of Tesla debt. The bold font at the end is due to me:
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NEW YORK (S&P Global Ratings) Aug. 7, 2017--S&P Global Ratings today affirmed
its 'B-' long-term corporate credit rating on
Tesla Inc. The outlook is
negative.
At the same time, we assigned our 'B-' issue-level ratings to its proposed
$1.5 billion of senior unsecured notes due in 2025. The '3' recovery rating
indicates our expectation of meaningful recovery (50%-70%; rounded estimate:
60%) in the event of a payment default.
We also affirmed our 'B-' issue-level ratings on its existing senior unsecured
debt and revised our recovery ratings to '3' (50%-70%; rounded estimate: 60%)
from '4'.
The affirmation reflects Tesla's improved liquidity cushion, which in our view
somewhat offsets the substantial risk related to the rapid scale-up of its
Model 3 production and the significantly high debt burden on its balance
sheet. Given the recent launch of the Model 3, scale of Tesla's battery
manufacturing investments, the public perception of its technology, and its
access to the capital markets, the company's financial commitments appear
sustainable for now--albeit with significant execution risks.
The negative outlook on Tesla reflects the company's increased execution risks
over the next 12 months and the lack of visibility around when it will sustain
positive FOCF, which could cause us to downgrade it over the next 12 months.
We could lower our ratings on Tesla if execution issues related to the Model 3
launch later this year or the ongoing expansion of its Models S and X
production lead to significant cost overruns. We could also downgrade the
company if it appears unlikely that Tesla will refinance its upcoming
maturities and sustain a liquidity cushion of at least $1.5 billion as it
funds its capital-intensive operations over the next 12 months. This could
lead us to believe that Tesla's financial commitments are unsustainable over
the long-term.
We could revise our outlook on Tesla to stable if the company is able to
sustain its liquidity position and we see a credible pathway for it to
generate marginally positive FOCF following its aggressive production ramp-up
over the next 12 months. We would also need to believe that the company's
improved market position is sustainable.
Longer term, we also believe that any upward rating momentum would be based on
a sustained track record of successful execution toward its operating and
financial targets on sales and gross margins.
We believe the company's high
level of vertical integration offers a credible pathway for the company to
achieve meaningful scale over the long term, allowing it to achieve a higher
return on capital as its battery costs decline.