Fitch Ratings assigned Tesla a first-time ‘BBB’ long-term issuer default rating on Monday.
The credit rating agency attached a Stable outlook and cited Tesla’s position as a global leader in fully electric vehicles.
However, it also warned that a rapid ramp-up in artificial intelligence spending will compress margins, push free cash flow (FCF) negative and lift debt over the intermediate term.
Fitch published the rating at 5:31 p.m. Eastern on Monday, after the market close.
Fitch’s ‘BBB’ matches the rating S&P Global Ratings has maintained on Tesla.
It sits one notch above the Baa3 that Moody’s assigns, a rating Chief Executive Officer Elon Musk called “ridiculously low” in June.
Fitch’s rating committee met on August 26, according to the agency’s release.
AI Capex Drives Negative FCF
Tesla is entering a major investment cycle in AI, automation and robotics, Fitch said. C
Capital expenditure is expected to exceed $25 billion in 2026, more than triple 2025 levels, with research and development spending also rising.
Much of the outlay will fund construction and training of the Cortex 2 AI supercomputer.
Cortex 2 underpins Tesla’s Full Self-Driving (FSD), Robotaxi and Optimus humanoid robot programmes.
Fitch said management had indicated that speed of deployment may be prioritized over absolute capital efficiency.
Fitch expects FCF to stay negative for at least the next several years.
Capex could keep growing over the next two to three years, the agency said. Tesla also plans to be opportunistic in securing up to $30 billion in debt facilities.
Morgan Stanley’s estimates run in the same direction.
Analyst Andrew Percoco projects Tesla will spend nearly $30 billion in capital expenditure in 2027, up from a prior estimate of $20 billion. He expects FCF burn of about $14 billion, according to a September note.
Chief Financial Officer Vaibhav Taneja had already warned in April that Tesla expected negative free cash flow for the rest of 2026.
The second quarter showed it. Operating cash flow of $4.7 billion fell short of $5.8 billion in capex, leaving FCF at minus $1.1 billion, the first negative quarter since early 2024.
Balance Sheet
Tesla held $43.5 billion in cash, cash equivalents and short-term investments as of June 30, Fitch said.
The company also has full availability on a $5.0 billion unsecured revolver maturing in 2028.
Debt stood at about $6.0 billion as of the same date, excluding asset-backed debt and finance leases.
Of that total, $5.9 billion consisted of borrowings on a working capital facility at Tesla’s China operations. Its tranches mature between September 2026 and March 2027, according to Tesla’s filings.
Cash equity debt made up $116 million, and other debt $2 million. Both the China facility and the cash equity debt are non-recourse to the parent company.
Excluding asset-backed debt, EBITDA leverage has remained under 0.5x for several years.
Fitch expects leverage to rise as Tesla borrows to fund part of its capex plan.
Musk wrote in June that Tesla had “over $40B in cash, no debt.”
Filings showed $9.2 billion of debt and finance leases as of March 31. Almost all of it was non-recourse, and recourse debt, the only kind with a claim on the parent company, was $2 million.
Cash then stood at $44.7 billion.
Core Business Under Pressure
Tesla’s share of the global BEV market has declined as competitors multiplied, Fitch said.
Even so, the Model Y remains the world’s top-selling BEV by a wide margin.
Tesla still leads BEV share in North America and generally ranks first or second in Western Europe. In China, Tesla continues to lose share to local players.
Fitch flagged the narrow product portfolio as a constraint.
Following the cancellation of the Model S and X, Tesla’s lineup rests mainly on the refreshed Model 3 and Model Y. Rival automakers are also introducing driver-assistance systems comparable to FSD.
Tesla delivered a record 480,126 vehicles in the second quarter, up 25%. The third quarter is tracking weaker.
Goldman Sachs cut its third-quarter delivery forecast to 435,000 vehicles from 490,000 last week.
Analyst Mark Delaney said China, the US and Europe were all tracking below expectations.
Tesla’s retail sales in China fell 12.4% in the first eight months of 2026 to 316,251 vehicles, according to the China Passenger Car Association.
Exports from Shanghai offset the domestic decline. The plant’s wholesale shipments, which include exports, rose 25.6% to 647,694 over the same period, implying exports more than doubled.
Automotive gross margin excluding regulatory credits fell to 16.3% in the second quarter from 19.2% in the first. Management said the margin was roughly flat after excluding about $230 million of one-off first-quarter benefits.
Fitch said EBITDA margins have held in the mid-teens in recent years. The agency’s base case keeps them in the low- to mid-teens range, declining as AI-related spending increases.
EBITDA adds back depreciation and stock-based compensation, both of which are rising with the AI build and the 2025 CEO award. That is why it can stay in the teens while Tesla’s GAAP operating margin was 1.4% in the second quarter.
FSD and Optimus Assumptions
Fitch’s rating case assumes active global FSD subscriptions grow exponentially as the service enters more markets and take rates increase.
Optimus robot shipments are assumed to begin in 2027 and grow rapidly thereafter.
Active FSD subscriptions rose 56% from a year earlier to 1.48 million in the second quarter.
Investor Ron Baron cited that adoption last week when urging investors to buy the stock.
Regulatory approval for FSD outside North America remains limited to select Asian and European markets, Fitch said.
Robotaxi operations run in only a few US cities, and Optimus is still under development. Scaling timelines for both are uncertain, according to the agency.
Oppenheimer separately flagged further Optimus delays on Monday. Analyst Colin Rusch said meaningful Optimus sales revenue is unlikely before 2029.
Rating Triggers
Fitch listed several factors that could lead to a downgrade.
These include EBITDA margins falling below 11.0% on a sustained basis and EBITDA leverage rising above 3.0x without a clear path to de-levering.
Operating cash flow margins below 11.0% would also weigh on the rating, as would prolonged delays in commercializing new products that leave capacity significantly underused.
An upgrade would require capex to decline toward historical levels, sustaining FCF margins above 4.0%.
Fitch also cited EBITDA leverage falling below 2.0x after the borrowing cycle and EBITDA margins rising above 14.0% on a sustained basis.
Peers and Key Person Risk
Fitch benchmarked Tesla against both technology companies and automakers.
Tesla’s EBITDA margins trail those of Samsung Electronics (AA-), SpaceX (BBB+) and Intel (BBB), and exceed only Xiaomi’s (BBB+) within that group.
Against automakers, Tesla posts higher EBITDA margins than Toyota (A+), Honda (A-) and Volkswagen (A-).
General Motors holds a ‘BBB’ with a Positive outlook, and Ford a ‘BBB-‘ with a Stable outlook.
Fitch’s BBB+ on SpaceX places Musk’s aerospace and AI company one notch above Tesla.
Moody’s gap is wider. Its Baa1 on SpaceX, assigned in June, sits two notches above Tesla’s Baa3.
Tesla owns less than 1% of SpaceX, through a $2 billion investment in xAI that converted into SpaceX shares in March.
Musk owns about 20.0% of Tesla, with potential for further increases under his 2025 CEO Performance Award.
Fitch described reliance on Musk as a governance consideration, citing risks around continuity, concentration of influence and reputation.
The agency also credited his leadership as central to Tesla’s innovation, cost discipline and engineering culture.
Fitch assessed Tesla’s governance as ‘good’ and said the assessment had no impact on the rating.
