Tesla says supplier discount request was for ongoing projects

Andrew Cummings
July 24, 2018

The Wall Street Journal article was based on a memo from the electric auto maker asking a supplier to return what is reportedly a meaningful amount of money on its payments since 2016.

In a note to clients, Citi Investment Research analyst Itay Michaeli stated that Tesla's refund requests to its suppliers gave the impression that the negotiations were essential to the company's continued operations. It's down from a peak of $385 in September, with many investors growing concerned about Tesla's spending and its ability to meet its production goals.

The Wall Street Journal reported that Tesla was asking its suppliers for cash back on old orders.

The electric automaker declined to comment on the memo.

"This is one more sign that money is getting shorter and shorter and I am sure that Tesla needs fresh money at the latest next year", said Frank Schwope, an analyst with NORD/LB.

Tesla has been burning cash at a rate of about $1 billion a quarter and finished the first quarter with $2.7 billion in cash on hand.

Tesla is pushing to improve its financial position as it spends heavily to boost production of its latest vehicle, the Model 3. Even though Tesla is making more of the sedans, the company won't complete delivery and collect revenue for many of them until the third quarter, Whiston said.

"I haven't heard of this being done before, and I've been following the industry for 20 years".

Not everyone agrees. Ben Kallo, a Robert W. Baird & Co. analyst with the equivalent of a buy rating on Tesla shares, said he thinks the supplier renegotiation is about boosting profits "rather than a necessity for the balance sheet".

The leak comes soon after Tesla announced it is cutting several thousand jobs as part of an effort to reduce costs. "It would not be correct to apply historical cost savings to current quarter". "It's simply ludicrous and it just shows that Tesla is desperate right now", Dennis Virag, a manufacturing consultant, told The Wall Street Journal.

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

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