The rating makes sense to me. Tesla faces a lot of risk. There are many ways the company could end up sinking without a trace, many of them completely outside of their control.
Battery technology and rare earth mining could take a turn for the worse and make their products impractically expensive. A subtle defect could end up requiring them to recall essentially all of their product (unlike any other automaker out there, 90+% of Teslas on the road right now are the exact same model). Their one factory could burn down and they could be unable to recover from it. GM could discover that they filed a critical patent that applies to Tesla's technology during their development of the EV-1, and decide that they'd rather destroy the company than work out a licensing agreement. I could go on.
Tesla is a small company right now, and they don't have the sort of depth that a large, established company has. Yes, they have a potentially huge upside. They could potentially end up the size of Toyota or GM, eventually.
But that huge upside doesn't matter here! When rating debt, all that matters is how likely you are to pay it back. You get no points for a 10% chance of striking it rich. Even a 75% chance of striking it rich, with a 25% chance of going broke, could easily justify "junk" status, because that means a 25% chance that creditors don't get paid back.
So what's the big deal, here? Are we going to criticize S&P for telling it like it is, just because we really like Tesla?
The rating makes sense to me. Tesla faces a lot of risk. There are many ways the company could end up sinking without a trace, many of them completely outside of their control.
Battery technology and rare earth mining could take a turn for the worse and make their products impractically expensive. A subtle defect could end up requiring them to recall essentially all of their product (unlike any other automaker out there, 90+% of Teslas on the road right now are the exact same model). Their one factory could burn down and they could be unable to recover from it. GM could discover that they filed a critical patent that applies to Tesla's technology during their development of the EV-1, and decide that they'd rather destroy the company than work out a licensing agreement. I could go on.
Tesla is a small company right now, and they don't have the sort of depth that a large, established company has. Yes, they have a potentially huge upside. They could potentially end up the size of Toyota or GM, eventually.
But that huge upside doesn't matter here! When rating debt, all that matters is how likely you are to pay it back. You get no points for a 10% chance of striking it rich. Even a 75% chance of striking it rich, with a 25% chance of going broke, could easily justify "junk" status, because that means a 25% chance that creditors don't get paid back.
So what's the big deal, here? Are we going to criticize S&P for telling it like it is, just because we really like Tesla?