Tesla Appeals To Suppliers For Refunds To Buffer Cash Position (NASDAQ:TSLA)


Tesla may have finally hit its production target of the Model 3, but the company is not yet out of the woods.

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 requested the supplier return what it calls a meaningful amount of money of its payments since 2016, according to the memo". "It would not be correct to apply historical cost savings to current quarter".

Morningstar's David Whiston writes that while auto makers face "brutal" pricing demands on suppliers for future work "but retroactive rebates is not something we hear much about, and this is troubling for us to hear".

Tesla's stock declined 6% in about a 20-minute period after his tirade.

In June, Tesla said it was cutting several thousand jobs to become sustainable profitable without endangering the ramp-up of Model 3 production.

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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.

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. While it's true that carmakers will ask for lower prices in future model years as both sides wring costs out of manufacturing, asking for money from parts made two years ago is highly unusual, said Ron Harbour, a senior partner at Oliver Wyman in Detroit.

Tesla shares have fallen sharply after it was revealed the electric carmaker is seeking refunds from some suppliers.

While it may be a bad sign, going after suppliers is just the latest thing Tesla is doing to get cash and get the Model 3 to Tesla's eager buyers.