Tesla's share price falls 4 per cent after asking suppliers for refunds

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Tesla Asks Suppliers for Cash Back in a Bid to Achieve Profitability

When a company asks suppliers to retroactively give money back, it's a sign that something has gone wrong.

Musk tweeted this morning to clarify what the company was up to saying, "Only costs that actually apply to Q3 & beyond will be counted".

Instead, he has told investors that he expects the firm to turn a profit in the third quarter of this year.

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

That's what analysts worry about with Tesla, which has asked suppliers to return a portion of payments for parts they've delivered going back to 2016. When approached, some suppliers said they were unaware of Tesla's demands. As a spokesperson told us "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".

Tesla is pushing to improve its financial position as it spends heavily to boost production of its latest auto, the Model 3. Tesla's cash burn, which was reduced to $1.1 billion on its most recent earnings report in May, will be top of mind when the company reports second quarter earnings on August 1.

Tesla did not respond to a BBC request for comment. As investors started to get restless, Musk kept on making grand promises for future Tesla models and new Model 3 versions, which probably only added investor annoyance.

All of that has to happen while Tesla carries $10.5 billion in debt. While Chief Executive Officer Elon Musk proclaimed a "real" carmaker after hitting a weekly goal of producing more than 5,000 mass-market Model 3s, there are doubts the volumes can be sustained. Even if Tesla's operations are cash-flow neutral this year and next, just paying off that debt would leave Tesla with only $900 million in cash on the balance sheet, said Joel Levington, a debt analyst with Bloomberg Intelligence. Tesla already cut its workforce by 9% in June, and Musk reportedly promised to slow spending.

The company's shares dropped as much as 5.9 percent on Monday following the report.

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