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

Tesla wants to increase production of its Model 3 car in order to turn a profit

Tesla wants to increase production of its Model 3 car in order to turn a profitLUCY NICHOLSON REUTERS

The company, which has already tapped the debt and equity markets for much-needed cash, turned recently to some suppliers for "meaningful" rebates on payments made to them since 2016, according to a report.

Tesla probably has some leverage to gain suppliers' support, given that the type of parts it uses is probably a bit different from other automakers and it may even be the only customer in some cases, said Koji Endo, an auto analyst at SBI Securities Co.in Tokyo.

Tesla already cut its workforce by 9% in June, and Musk reportedly promised to slow spending. The memo came from a global supply manager and said the request was essential to Tesla's continued operations, the Journal said.

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

The Tesla logo is seen at the entrance to Tesla Motors' new showroom in Manhattan's Meatpacking District in New York City, U.S., December 14, 2017.

In the meantime, manufacturing consultant Dennis Virag told The WSJ that Tesla's request shows that it's "desperate right now", and that the company is "worried about their profitability but they don't care about their suppliers' profitability".

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The report also said it's not clear how many suppliers received the request.

After the statement, Tesla shares bounced back, but were still down 2.7 percent. Mr Musk has said the company does not need to raise cash this year, but several analysts have predicted that the electric vehicle maker would need to raise capital soon.

This development comes at a critical time as the company is struggling to boost production of its first mainstream model, the Model 3.

Chief executive Elon Musk has said that Tesla will reach a profit in 2018's second half. "It would not be correct to apply historical cost savings to current quarter", Musk tweeted.

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

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