Thursday, 16 August, 2018

Tesla's call for suppliers to refund cash 'reeks of desperation'

Tesla Asks Suppliers for Cash Back in a Bid to Achieve Profitability Steve Jurvetson Flickr
Cristina Norman | 24 July, 2018, 18:56

When asked whether the company has requested refunds from suppliers, a Tesla spokesman referred to a company statement, which said Tesla had asked fewer than 10 suppliers for a reduction in total spending on projects that started in 2016 and are not complete.

Tesla has said the company will be profitable in the third and fourth quarters of the year.

While certainly an ambitious goal given Tesla's history, there's reason to believe that Musk's promise might actually pan out.

The manager described the refunds as "essential" to Tesla's ability to continue operating at its current speed and scale, portraying the money's return as an investment into the company's future. Tesla held about $3.2 billion in cash after the first three months of the year, having spent about $1 billion through March.

Not too long ago, Tesla CEO Elon Musk, who has a penchant for making bold promises, claimed that Tesla would be able to turn a profit sometime before 2019.

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

On the road to profitability, suppliers often get squeezed.

The remainder of our discussions with suppliers are entirely focused on future parts price and design or process changes that will help us lower fundamental costs rather than prior period adjustments of capex projects.

Of course, forecasting that far out has its challenges, and what the company will even look like in 2027 " is still highly uncertain", given new vehicle introductions. Musk has pushed back on naysayers, arguing that the company will be profitable this quarter and next.

As pressure mounted to ramp up Model 3 production, Musk set up a tent outside Tesla's plant in Fremont, California. Auto manufacturing consultant Dennis Virag told The Wall Street Journal that automakers and suppliers often renegotiate contracts for work going forward, but that it is unusual to make such a reduction retroactive.

In June the company said it was eliminating 3,600 jobs, or 9 percent of its staff, as part of a restructuring effort.

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