Tesla Turns To Suppliers To Help It Become Profitable

Tesla Appeals To Suppliers For Refunds To Buffer Cash Position

The tech giant has been chasing profitability in recent months, after Musk promised the company would reach that target by the third or fourth quarter this year.

"If there are any one-time windfalls that aid in Tesla achieving its profit goals, we expect the market would view that as unsustainable", said Jamie Albertine, senior automotive analyst for Consumer Edge.

The Journal said Tesla confirmed that it is "seeking price reductions from suppliers for projects, some of which date back to 2016, and some of which haven't been completed".

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Suppliers claim to have been sent letters asking them to repay substantial amounts. 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. As a spokesperson told us "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". As investors started to get restless, Musk kept on making grand promises for future Tesla models and new Model 3 versions, which probably only added investor annoyance.

"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 brokerage NORD/LB.

The cost of insuring $100 of Tesla debt hit $6.58 around 10:30 am Tuesday, according to data from Bloomberg, amid fresh fears over Tesla's cash position.

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Tesla cut nine per cent of its workforce in June in a bid to reduce its costs ahead of meeting Musk's targets of producing 5,000 Model 3 sedans per week. 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.

The company's shares dropped as much as 5.9 percent on Monday following the report.

Another tweet from Elon Musk, and Tesla stock is tumbling.

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