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

Outside the Tesla showroom in Newport Beach California

Tesla Inc. asked some suppliers to return a portion of its payments to them in an attempt by the electric-car maker to turn a profit, the Wall Street Journal reported, citing a memo sent to a supplier last week. Analysts say Tesla needs to sell a lot more cars.

The auto maker's memo, sent by a global supply manager, described the request as essential to Tesla's continued operation and characterized it as an investment in the vehicle company to continue the long-term growth between both players. Tesla has been hemorrhaging cash at a rate of about US$1 billion a quarter, and finished the first quarter of 2018 with US$ 2.7 billion in cash on hand.

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.

Based on the WSJ report, suppliers appear reluctant to compromise their own profitability to buoy Tesla. The remainder of supplier discussions focus on future parts price or other changes that will help lower costs, he said.

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

More news: Dollar drops on Trump criticism; U.S., Europe stocks tepid

Supply-chain consultants told the paper that sometimes automakers will demand a reduction in price for a current contract going forward or use leverage of the promise of a new deal to get upfront savings. The stock is down from a peak of $385 in September, with many investors growing concerned about Tesla's spending and its ability to meet its production goals.

The tech giant has been chasing profitability in recent months, after Musk promised the company would reach that target by the third or fourth quarter this year. The electric carmaker has been burning through cash as it speeds up production of its Model 3 sedan.

All of that has to happen while Tesla carries $10.5 billion in debt.

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

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