Tesla: asking suppliers for cash back is ‘standard’ negotiating strategy

Tesla has asked for money back from some of its long-term suppliers in order to help it return a profit, but the firm has insisted the move is a “standard” part of its negotiation process.

The Californian EV maker sent a memo to some parts suppliers for the request, asking for a “meaningful amount of money” back from its payments made to suppliers. The move, presented as necessary to help Tesla move into a profitable period, will also help its reportedly poor cash position while it attempts to increase production levels of the Model 3. The memo was first reported by the Wall Street Journal, which said it had seen a copy.

The memo claims the request is vital for Tesla’s continued operation, and means the suppliers will be investing in the brand’s long-term growth. Chief Executive Elon Musk has previously promised the brand would operate under positive cash-flow in the second half of 2018 thanks to the Model 3’s increased production rate.

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Musk took to Twitter to comment on the allegations made by the Wall Street Journal, claiming “only costs that actually apply to Q3 and beyond will be counted. It would not be correct to apply historical cost savings to current quarter”.

In a statement, Tesla said that “negotiation is a standard part of the procurement process,” adding that the increased production of the Model made it a good time to “improve our competitive advantage in this area.”

Tesla added: “We’re focused on reaching a more sustainable long-term cost basis, not just finding one-time reductions for this [financial] quarter, and that’s good for Tesla, out shareholders, and our suppliers who will also benefit from our increasing production volume and future growth opportunities.”

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The firm also downplayed the significance of the request, noting that the memos was only sent to a handful of firms: “We asked fewer than 10 suppliers for a reduction in total capex project spend for long-term projects that began in 2016 but are still not complete. Any changes with these suppliers would improve our future cash flows, but not impact our ability to achieve profitability in Q3”.

In the final week of June Tesla reported it had hit its production target of 5,000 Model 3s per week, increasing output by 40 per cent over ‘production bottlenecks’ in the first quarter of the year. Production has been temporarily boosted by a large tent installed outside the brand’s facility in Fremont, California.

Tesla’s cash position had already received a boost from Model 3 confirmation deposits earlier this year, with US customers who had placed $1000 for an order asked to add another $2500 to move the process to the build stages.