Tesla Shares Drop After The Comapny Reportedly Asks for Discounts from Suppliers

A Wall Street Journal report revealed over the weekend that electric vehicle maker Tesla has been asking suppliers to give cash back from previous payments in order to help the company become profitable.

The WSJ cited a memo where Tesla asked a supplier to give back a “meaningful amount of money of its payments since 2016.”

A Tesla spokesman said the company had asked “fewer than 10 suppliers for a reduction in total capex project spend for long-term projects that began in 2016 but are still not complete.”

The spokesman also said that “any changes with these suppliers would improve our future cash flows, but not impact our ability to achieve profitability in the third quarter.”

He added, “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. This is the right thing to do.”

The full statement reads, “Negotiation is a standard part of the procurement process, and now that we’re in a stronger position with Model 3 production ramping, it is a good time to improve our competitive advantage in this area. We’re focused on reaching a more sustainable long term cost basis, not just finding one-time reductions for this quarter, and that’s good for Tesla, our shareholders, and our suppliers who will also benefit from our increasing production volume and future growth opportunities. We asked fewer than 10 suppliers for a reduction in total capex project spend for long-term projects that began in 2016 but are still not complete, and any changes with these suppliers would improve our future cash flows, but not impact our ability to achieve profitability in Q3. 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. This is the right thing to do.”

CEO Elon Musk commented on Twitter, “Only costs that actually apply to Q3 & beyond will be counted. It would not be correct to apply historical cost savings to current quarter.”
Tesla is expected to report its earnings results on Aug. 1.

Disclaimer: We have no position in Tesla Inc. (NASDAQ: TSLA) and have not been compensated for this article.