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Tesla asked suppliers for money back to boost profitability

Tesla asked suppliers for money back to boost profitability
[Photo: courtesy of Tesla]

The electric carmaker reportedly asked select suppliers to return part of the money it paid them for past work to help the company reach profitability, the Wall Street Journal reports. While it’s not clear which suppliers Tesla asked for cash back, or how much, the Wall Street Journal said the amount was “meaningful.” In a memo sent to several suppliers requesting money back, Tesla said the cash back would be necessary for Tesla’s “continued operation” and that it was an investment in “long-term growth.”

Of course, this news won’t make Tesla investors happy. If a company needs to request money back from its supplier to achieve profitability, that doesn’t seem like a sustainable business model. That’s not to mention that it is sure to make future suppliers leery of working with Tesla. As one manufacturing consultant who isn’t involved with Tesla told the WSJ: “It’s simply ludicrous and it just shows that Tesla is desperate right now. They’re worried about their profitability but they don’t care about their suppliers’ profitability.”

Update: A Tesla spokesperson reached out with the following statement following the Wall Street Journal’s report:

“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.”

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