Moody’s Investors Services late Tuesday downgraded Tesla Inc. corporate debt rating to B3 from B2, one notch further down on its junk-bond rating, saying the Silicon Valley car maker “will have to undertake a large, near-term capital raise in order to refund maturing obligations and avoid a liquidity shortfall.” The ratings reflect “the significant shortfall” in the Model 3 production rate as well as the company’s “liquidity pressures due to its large negative free cash flow and the pending maturities of convertible bonds ($230 million in November 2018 and $920 million in March 2019),” Moody’s said. The bond rating company also downgraded the company’s 2025 notes to Caa1, from B3, thanks to “the junior position of the notes relative to the company’s $1.9 billion secured credit facility,” it said. Tesla enjoys “solid market acceptance” of its Model S and Model X vehicles, favorable Model 3 reviews, and growing regulatory support for electric vehicles. The negative outlook, however, reflects the likelihood that Tesla will have to tap capital markets to fend off a potential liquidity crunch. The rating could be lowered further if there are shortfalls in the company’s Model 3 production targets and raised if the Model 3 production rate meets expectations and if the company maintains good liquidity, Moody’s said. Shares of Tesla were down 0.1% in the extended session, and ended the regular trading day down 8%. Tesla’s 2025 bonds were trading at the lowest levels recently.
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