Markets

Tesla: asking suppliers for cash back is 'standard' negotiating strategy

Tesla: asking suppliers for cash back is 'standard' negotiating strategy

Tesla's cash position is a concern because the company has burnt through billions of dollars to step up production of the Model 3, its first mass-market vehicle.

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.

The company has asked for an undisclosed rebate on money it has spent on suppliers since 2016. "It would not be correct to apply historical cost savings to current quarter", tweeted Musk.

"It's troubling", David Whiston, an analyst with Morningstar in Chicago, said in an interview on Monday as Tesla's stock declined, closing off 3.3 percent.

Last month, Tesla said it was cutting several thousand jobs to become sustainably profitable without endangering the ramp up of Model 3 production.

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. Chief Executive Officer Elon Musk has said the company does not need to raise cash this year, but several analysts have predicted that the electric auto maker would need to raise capital soon.

"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 NORD/LB.

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.

Meanwhile Musk said earlier this year that he was sleeping on the factory floor because he was so busy trying to ramp up production.

Despite of years of unprofitability, Tesla's market capitalization is over $50 billion.

All of that has to happen while Tesla carries $10.5 billion in debt. "It's simply ludicrous and it just shows that Tesla is desperate right now", he said.

After the statement, Tesla shares bounced back, but were still down 2.7 percent. Nevertheless, the media noise has not been of any help to the cash-strapped carmaker.


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