S&P Has Some Positives To Say About The Company.
But It Is “Vulnerable”, With Narrow Product Range.
Morgan Stanley Slashes Electric Car Forecast, But Backs Tesla.
Tesla Motors investors, used to seeing their shares soar to amazing highs, took another hit as ratings agency Standard & Poors (S&P) gave its financial profile “junk” status.
This came after the shares took an earlier hit from worries about progress on Tesla’s so-called “giga” battery factory.
The “junk” label is in fact a S&P “B-“ rating, but this is U.S. media shorthand for anything below a “B”. Companies are given junk-bond ratings when investors fear an increased possibility of default. In fact, S&P said it expects Tesla to sustain its recent improvement in profit margins over the next 12 months because of strong demand for the Model S.
In the first quarter, Tesla posted a net loss of $49.8 million compared with a net profit of $11.3 million in the same period of 2013. Sales rose to $620 million from $555 million.
But S&P did have some sombre sounding thoughts about Tesla, describing its business risk profile as “vulnerable”.
“Tesla (has a) 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 a limited track record in handling execution risks that could arise in managing high volume parallel production,” S&P said.
S&P said Tesla’s was a niche and independent market position compared to its significantly larger and stronger peers, with a very limited product range and operating diversity.
Considerable uncertainty
“We expect global competition for alternative fuel vehicles to intensify over the next few years as competitors penetrate this market through improved products. We believe there is considerable uncertainty in Tesla’s long-term prospects and believe that the company is less likely, compared to larger, more established automakers, to successfully adapt to competitive and technological displacement risks over the medium to long-term,” S&P said.
Meanwhile electric vehicle market prospects took a hit from a report from Morgan Stanley which slashed back forecasts for the market. The report though did say Tesla would succeed where others fail.
Morgan Stanley’s Adam Jonas headlined his report “EVs are Dead, Long Live Tesla”.
“Tesla aside, the auto industry’s push into EVs has fallen far short of expectations. Just a few years ago, forecasts for global EV penetration were as high as five or 10 per cent by 2020. From today’s perspective, we think penetration in the one per cent range would be respectable,” Jonas said.
Price premium
S&P had some good things to say about Tesla.
“Mitigating factors include improving brand recognition, ongoing cost structure improvements with higher unit sales leading to better absorption of fixed costs and lower logistics costs, as well as Tesla’s ability to command a price premium through its Model S product design and technology,” S&P said.
In April, Tesla’s already sky high share price zoomed again close to $260. After financial results it slipped back to nearly $180, although a year ago it was around $35 a share. As May came to a close though, the shares had climbed back up to around $210.
Tesla plans to invest $2 billion in a U.S. car battery plant costing between $5 billion and $6 billion that could supply lithium ion battery packs for 500,000 vehicles a year by 2020.
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