The rating agency said late Tuesday Tesla's $2.2 billion in debt, to be paid over the next four to seven years, is a risky bet the company has undertaken. Tesla's debt received a B- unsolicited corporate credit rating with a stable outlook.
"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," the agency said.
The company raised $2.3 billion in March selling convertible debt to fund a battery factory that will allow for more affordable models. So far the company has tapped the debt market without receiving a ranking from any of the major ratings companies.
Tesla is one of the youngest U.S. carmakers with a $26 billion market capitalization, half that of General Motors and more than third of Ford Motors, but still a fraction of the sales and volumes of the larger automakers.
S&P said Tesla could raise its rating if it sees higher and sustainable demand for its vehicles and cost control measures that could lead to "a credible pathway" for free operating cash flow and a lower leverage ratio. But the agency says it does not see this happening in the next 12 months.