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Tesla Asks Suppliers for Cash Back in a Bid to Achieve Profitability

24 July 2018

According to a report by the Wall Street Journal, Tesla has asked some of its suppliers to refund some of the money it had spent with them in the past in increase its profitability and improve its liquidity.

This development comes at a critical time as the company is struggling to boost production of its first mainstream model, the Model 3. It suggested that all Tesla suppliers were being asked to make partial refunds, but some of the companies that the WSJ talked to denied any knowledge of such a request.

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Suppliers claim to have been sent letters asking them to repay substantial amounts. Musk has pushed back on naysayers, arguing that the company will be profitable this quarter and next.

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

In a memo to targeted suppliers, management framed the appeal as an "investment", an opportunity to ensure Tesla's continuation and, by extension, its ability to remain a parts buyer.

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"I haven't heard of this being done before and I've been following the industry for 20 years, " he said.

"We find it a little disturbing that Tesla feels it needs to claw back funds from suppliers to meet its third quarter financial objectives, " said Efraim Levy, an analyst with research house CFRA.

"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.

A representative for Tesla said that "negotiation is a standard part of the procurement process", adding that this is "the right thing to do".

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.

Tesla Asks Suppliers for Cash Back in a Bid to Achieve Profitability