Electric-car maker Tesla Inc. turned to its suppliers to become profitable, as the company reportedly requested some of them to reimburse what it called a meaningful amount of money of its payments since 2016.
The memo, which was sent by one of Tesla’s global supply managers, described the plea as vital to the the Palo Alto-based firm’s sustained operation and as an investment in the auto group to maintain long-term growth between both players.
While the note asked all suppliers to help out the company, it is unclear how many received a request for a discount on contracted spending amounts retroactively. Some suppliers even said they were unaware of it.
Tesla declined to comment about the cash-back request, but confirmed that it is asking suppliers to cut costs on plans, including the ones that started in 2016 and the ones that have not been completed.
The EV maker also said the memo is part of their standard procurement negotiations to gain more competitive advantage, especially as it speeds up production of the Model 3.
Tesla announced earlier this month that it has completed its long targeted 5,000 units per week production rate for the Model 3, achieving a major milestone after months of manufacturing delays for the vehicle, which had impacted its suppliers.
The company is now trying to become profitable through the new production rise and as it seeks to enhance production capacity to 10,000 units per year.
Tesla’s Request Raises Questions on its Cash Position
While the request for a price reduction for an existing contract going forward, or the use of leverage of granting a new deal is not uncommon for carmakers, supply-chain consultants saw it odd for an auto company to call for a refund for previous project.
Manufacturing consultant Dennis Virag said the plea was simply nonsensical and that it just shows that Tesla is desperate right now.
In an effort to yield profit, Tesla last month also made a drastic move to dismiss around 9 percent of its workforce, as part of its restructuring plans.
The note raises questions about Tesla’s cash flows, despite previous assurances from Chief Executive Elon Musk that they will reach profitability in the third and fourth quarters of this year.
Tesla has been spending its money at a rate of about $1 billion per quarter and ended the first quarter with a profit of $2.7 billion. During the quarter, Tesla also reported its biggest net loss of $170 million, while combined revenue in the automotive and energy sector grew 26 percent.
Besides burning its cash at an astonishing speed, Tesla needs to ensure that its shares will hit the conversion prices, or it will have to pay $230 million convertible bond in November for not meeting the conversion price of $560.64, and $920 million convertible note in March 2019 for not reaching $359.87.
That means the firm will need to raise more money, which Musk previously deemed as unnecessary. Shares of Tesla are currently at $313.58, which is slightly far from the conversion prices.
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