Tesla reportedly asks suppliers for cash back to gain profit

24 July, 2018, 18:57 | Author: Natasha Holloway
  • Tesla Asks Suppliers for Cash Back in a Bid to Achieve Profitability

The electric vehicle company declined to comment on the specific memo but confirmed that it is seeking price reductions from suppliers for projects, some of which date back that far.

The memo was sent by a Tesla global supply manager and described the monetary request as "essential to Tesla's continued operation", and "characterized it as an investment in the auto company" according to the Journal.

The requested reduction in project capex would not impact Tesla's ability to achieve third-quarter profitability, a spokesperson told Reuters.

While certainly an ambitious goal given Tesla's history, there's reason to believe that Musk's promise might actually pan out. The company has been burning cash at worrying rates, with US$1 billion spent during the first quarter of this year alone.

When a company asks suppliers to retroactively give money back, it's a sign that something has gone wrong. As investors started to get restless, Musk kept on making grand promises for future Tesla models and new Model 3 versions, which probably only added investor annoyance.

In the memo to suppliers last week, Tesla asked for a meaningful amount of money to help it become profitable.

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"It's troubling", David Whiston, an analyst with Morningstar in Chicago, said in an interview on Monday as Tesla's stock declined, closing off 3.3 percent.

The request indicates more struggles for Tesla in its quest to reverse losses. The WSJ also spoke to a number of suppliers which had not been contacted about such rebates.

Company CEO Elon Musk stated on his official Twitter account that any refunds from suppliers would only involve those from Q3 and beyond would be counted. "It would not be correct to apply historical cost savings to current quarter", tweeted Musk.

Tesla's cash position is a concern because the company has burnt through billions of dollars to step up production of the Model 3, its first mass-market auto.

After the statement, Tesla shares bounced back, but were still down 2.7 percent.

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