"Tesla hits another bump in the road with Moody’s downgrade" (FT)

(27 March 2018)

Moody’s added to the recent woes of Tesla investors late on Tuesday, taking the company’s junk-bond credit rating down a notch to B3 and warning it may fall further if the company has trouble raising $2bn or so of fresh capital.

The rating agency’s move came at the end of a day in which shares in Elon Musk’s electric carmaker had already fallen more than 8 per cent. Debt investors have not been spared the pain, with the company’s 2025 unsecured notes trading at about 89.7 cents on the dollar.

In a note explaining its move, Moody’s said production delays for Tesla’s Model 3, launched last summer, were putting financial strains on the company. Tesla had $3.4bn in cash at the end of last year.

But Moody’s predicted it would need $2bn this year to cover its operating cash burn as it scales up production of the Model 3 production. With $1.2bn of convertible debt maturing by early next year, and the need for a cash cushion of at least $500m, that means Tesla will have to return to the financial markets again to keep a comfortable financial cushion, the agency said.

Tesla has pushed back its target twice for reaching a production rate of 5,000 Model 3s a week, and now predicts it will reach that level by the end of June. It has dropped its deadline for reaching a 10,000 vehicle a week production rate altogether. Moody’s said further production problems could also result in another downgrade.

Tesla declined to comment. It is expected to give an update on Model 3 production when it announces fourth quarter delivery numbers early next week.

Link: https://app.ft.com/content/c4ebb102-3202-11e8-b5bf-23cb17fd1498