Published: Wed, July 25, 2018
Finance | By Kristine Clayton

Tesla asks suppliers for money back on Model 3 parts

Tesla asks suppliers for money back on Model 3 parts

Tesla has asked some of its suppliers to refund a portion of what the auto maker has already spent to help it become profitable, the Wall Street Journal reports.

"This is troubling for us to hear", said Morningstar analyst David Whiston in a note to clients.

Tesla's Australia and Asia media office, as well as a spokesman and spokeswoman in the USA, didn't reply to emails seeking comment on the Journal report.

A Tesla spokesman told CNNMoney that it asked "fewer than 10" suppliers for money back for long-term projects that began in 2016 and have not yet been completed, The spokesman said the cost savings will help Tesla increase its production volume, though he claimed Tesla would be profitable without the concessions.

Elon Musk, Tesla's chief executive, wrote on Twitter on July 23: "Only costs that actually apply to Q3 & beyond will be counted".

As pressure mounted to ramp up Model 3 production, Musk set up a tent outside Tesla's plant in Fremont, California.

Despite the belt-tightening, many analysts still predict Tesla will eventually need to raise more money.

This strategy is part of a plan announced past 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.

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.

Tesla has since commented on the WSJ story, telling Reuters that it has contacted a small number of suppliers as part of a broader effort to secure price cuts.

Still, industry analysts said it is unusual for carmakers to request refunds for two previous years, as Tesla has demanded.

"We still have the same concerns, though, about general cash flow needs for the company, production quality issues, automation or lack thereof, as well as concerns on profitability", Mr Osborne said. Its loss attributable to common shareholders in the first quarter was US$710 million, the fifth consecutive quarter of record losses. Following the report, the company laid off 9 percent of its workforce and reduced investments in new projects and expanding existing operations.

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