Tesla reportedly asks suppliers for cash back to cover Model 3 costs

Difficulties in increasing production of the Model 3 apparently have Tesla asking for money back from suppliers.

Steven Ewing/Roadshow

is taking the somewhat unusual step of asking some automotive suppliers to return cash the company has already spent with them. According to a new report from The Wall Street Journal, Tesla sent a memo to suppliers asking for “a meaningful amount of money of its payments since 2016.”

So far, Tesla has not confirmed the contents of the memo, and representatives contacted by Roadshow didn’t respond to requests for comment. However, The Wall Street Journal said the memo described the refund request as “essential” to Tesla’s survival and critical for a continuing relationship between the automaker and supplier. Tesla has said that sales of the Model 3 are key to it becoming profitable and continuing to grow.

Tesla is currently working hard to ramp-up production of its more affordable
Model 3
electric car and reportedly characterized the requested price refunds as key to the company remaining profitable during the Model 3 launch. The Wall Street Journal says Tesla, “called such requests a standard part of procurement negotiations to improve its competitive advantage.”

There have been conflicting signs about Tesla’s financial health. On one hand, the automaker built a record number of Model 3 sedans in the second quarter, beating its internal target of building 5,000 of the cars per week. At that time, Tesla promised “positive GAAP net income and cash flow in Q3 and Q4, despite negative pressures.” And at the end of the first quarter, Tesla had said it had a cash balance of $2.7 billion.

However, earlier this summer the automaker implemented layoffs of 9 percent of its staff as it works toward profitability — at which time company CEO
Elon Musk
noted that Tesla has never made a profit in its 15-year history. In other words, it seems the electric automaker still has a long way to go before it’s out of the woods financially.

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