Tesla reportedly asks suppliers for cash back to gain profit

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Leaked Tesla memo describes cash back as 'investment' in the company

A memo from Tesla has been sent to select suppliers asking for cash back to help it become profitable, according to the Wall Street Journal.

The memo was reportedly sent by a global supply manager, and notes the request is essential to Tesla’s continued operation, describing it as an investment in the car company to continue the long-term growth between both players. The request encompasses payments dating as far back as 2016.

When asked by WSJ, Tesla denied the memo, however confirmed it is seeking price reductions from suppliers for projects, some of which date back to 2016, and some of which haven’t been completed. It said the requests are a standard part of procurement negotiations to improve its competitive advantage.

This development comes at a critical time as the company is struggling to boost production of its first mainstream model, the Model 3. It has promised to produce 5,000 Model 3s in a single week, but has only met that goal last quarter after months of delays. This milestone, if sustained, will help the company generate some much needed cash.

This strategy is part of a plan announced last 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 car and get paid for it before the bill is due to suppliers.

Becoming cash-flow positive is the primary goal of Chief Executive, Elon Musk, who said he wants to avoid raising additional cash, and turn a profit in the second half of the year. Tesla has been hemorrhaging cash at a rate of about US$1 billion a quarter, and finished the first quarter of 2018 with US$ 2.7 billion in cash on hand. Tesla has pledged to reduce capital expenditures this year to less than US$3 billion from US$3.4 billion last year. Its loss attributable to common shareholders in the first quarter was US$710 million, the fifth consecutive quarter of record losses.

A tweet from co-founder Elon Musk has confirmed this. "Only costs that actually apply to Q3 & beyond will be counted. It would not be correct to apply historical cost savings to current quarter," tweeted Musk. Tesla shares prices are down by 3%.

Despite the belt-tightening, many analysts still predict Tesla will eventually need to raise more money.

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