Tesla asks for cashback from suppliers to reach profitability: Report

Rank 2 | Elon R Musk | Company: SpaceX and Tesla | Net worth: $136 billion | YTD change: Gain by $108 billion (Image: Reuters)

The electric carmaker Tesla reportedly asked some of its suppliers to return portion of the money it has paid to them since 2016 which includes payment for the past work.

According to a report in The Wall Street Journal, Tesla handed out a memo to a supplier, last week, in which the company said that to reach profitability, it is asking some of its suppliers for refunds. This has raised a question about the company's cash flow despite its founder and CEO Elon Musk assuring in the past that the company will reach profitability in the third and fourth quarters of 2018.

The memo sent by one of Tesla’s global supplier managers said that the company is requesting back a ‘meaningful’ portion of its payments since 2016. Besides being important for the company’s operation, Tesla described it as an investment in the company’s long-term growth, benefitting its suppliers.

As per the report, Tesla declined to comment about the memo citing it as being standard in procurement negotiations between auto manufacturers and their suppliers. It said that the company was seeking price reductions on some projects including the ones that haven’t been completed yet and several dating back to 2016.

This move by Tesla of asking suppliers for money back instead of cutting costs of future work is raising questions about the company’s cash flow. Reports suggest that many suppliers might also refuse to work with the company after this step.

“It’s simply ludicrous and it just shows that Tesla is desperate right now. They’re worried about their profitability but they don’t care about their suppliers’ profitability,” said manufacturing consultant Dennis Virag.