Wednesday, 26 September, 2018

Give us cash back, Tesla tells suppliers

No caption Give us cash back, Tesla tells suppliers
Lindsey Cook | 24 July, 2018, 18:57

Tesla has asked some suppliers to refund money paid by the electric auto maker since 2016, the Wall Street Journal reported https://www.wsj.com/articles/tesla-asks-suppliers-for-cash-back-to-help-turn-a-profit-1532301091?mod=hp_lead_pos4 on Sunday citing a memo. What's more, a recent teardown of the Model 3 suggests that Tesla's mass market EV might be far more profitable than initially anticipated.

A memo sent to suppliers allegedly asked the third parties to send back a "meaningful" amount of cash for work dating back as early as 2016. The company has been burning cash at worrying rates, with US$1 billion spent during the first quarter of this year alone.

Musk, Tesla's co-founder and CEO, confirmed on Twitter that Tesla is asking for money from its suppliers.

This strategy is part of a plan announced previous year where Tesla was able to negotiate longer payment terms to about 60 days for Model 3 parts, which would allow the auto maker to make the vehicle and get paid for it before the bill is due to suppliers.

The reasoning behind Tesla's request is to help the company become profitable.

"Only costs that actually apply to Q3 & beyond will be counted", Musk said in a tweet late Sunday.

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Tesla in late June finally hit an important production target for the Model 3, its most accessibly priced electric auto.

The request indicates more struggles for Tesla in its quest to reverse losses.

Tesla has since commented on the WSJ story, telling Reuters that it has contacted a small number of suppliers as part of a broader effort to secure price cuts.

Shares in the company were last down 3.4 percent to $303.22.

As a refresher, Musk told Bloomberg: "Once we break through to mass-market cars, where mass-market is on the order of a quarter million vehicles per year, I can not see us doing a 1.2-million-vehicle program of one particular model".

Supply-chain consultants told the paper that sometimes automakers will demand a reduction in price for a current contract going forward or use leverage of the promise of a new deal to get upfront savings.

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