Moody's on Aug. 20 affirmed the ratings of Tesla Inc. and changed its outlook on the Silicon Valley-based electric carmaker to stable from negative.
The affirmation applies to Tesla's B3 corporate family rating and Caa1 senior unsecured ratings.
The agency said the stable outlook reflects its view that the improving operating efficiencies of Tesla's Model 3, in addition to rowing regulatory credit sales and an adequate liquidity position, will help the company undertake cost-cutting initiatives that will improve its profitability amid its aggressive expansion plans.
Meanwhile, it said the B3 rating reflects Tesla's achievement of scale production of the Model 3 after the company struggled with significant manufacturing and assembly hurdles. Moody's said Tesla was able to significantly reduce the level of capital expenditures needed to support its growth plans after the company boosted its experience with its production processes.
However, the rating agency highlighted corporate governance challenges at Tesla, saying the electric-vehicle maker has a "very weak" corporate governance structure. It noted the high turnover at the senior management ranks, including the recent move of Tesla co-founder and Chief Technology Officer Jeffrey Straubel to an advisory role within the company.
Moody's said CEO Elon Musk's conflict with the SEC in recent months also contributed to "periods of undue confusion" within the capital markets regarding the company's operational and financial strategy.
In addition, the rating agency expressed concern over Musk's executive responsibilities with his outside ventures such as SpaceX. Moody's said it could affect Musk's ability to adequately focus on Tesla's considerable challenges.
The agency said it could upgrade the ratings if Tesla is able to demonstrate sustained profitability and positive free cash flow amid rapid expansion plans in Europe and China.
Moody's could downgrade the ratings if demand for battery electric vehicles begins to soften in the U.S., or if Tesla falters in implementing its European or China expansion strategies.
