Tesla faces 'considerable' credit risk during Model 3 rollout: Moody's

Tesla’s (NASDAQ:TSLA) make-or-break launch of the Model 3, its first vehicle aimed at the mass-market, raises “considerable” credit risks for the electric car maker, according to a new report from Moody’s.

The credit-rating firm said near-term risks are elevated during an “unprecedented ramp-up” in production of the Model 3, a battery-powered sedan that starts at $35,000. Moody’s noted that Tesla has few proprietary technologies that would support a sustainable competitive advantage. The company also faces tough competition from the likes of General Motors (NYSE:GM), which launched the Chevrolet Bolt earlier this year.

Moody’s estimates that Tesla will sell 300,000 vehicles in 2018, far below the company’s goal of 500,000. Tesla plans to rapidly boost production to about 10,000 vehicles per week next year, doubling the company’s expected production rate at the end of 2017.

“Such a startlingly rapid ramp in production is an important element in Tesla staying ahead of the likely competitive surge that will come from other more established automakers and, potentially, technology firms such as Apple and Google,” Moody’s analysts wrote in a research note Thursday.

Even though 2018 sales will likely fall short of Tesla’s forecast, Moody’s said it believes 300,000 units sold “would be an indication of both the market’s acceptance of the Model 3, and Tesla’s ability to produce the vehicle efficiently.”

Analysts also expect Tesla to have adequate cash on hand while ramping up production of the Model 3. Earlier this week, Tesla announced plans for a $1.5 billion bond offering to fund its Model 3 rollout.

Tesla shares dropped 1.3% to $358.98 in recent trading. The stock has rallied about 67% since the start of the year, surpassing Ford’s (NYSE:F) market value in the process.