In an unusual move, Tesla has reportedly asked some suppliers to return part of the money it paid them for work already completed. According to the Wall Street Journal, which reviewed a memo Tesla sent to a supplier last week, the electric auto maker said it is asking suppliers for refunds to help it reach profitability. This stokes concerns about the company’s cash flow, despite earlier assurances from Tesla founder and CEO Elon Musk that it will be profitable in the third and fourth quarters of this year.
After months of production delays for the Model 3, Tesla recently hit a major milestone, announcing earlier this month that it reached its 5,000-per-week production target for the vehicle.
According to the Wall Street Journal, the memo, sent by one of Tesla’s global supply managers, said the company is requesting back a “meaningful” portion of its payments since 2016. Tesla described it as not only important for Tesla’s operations, but an investment in the company’s long-term growth that will also benefit its suppliers.
Tesla declined to comment about the memo to the Wall Street Journal, but said it is seeking price reductions on some projects, including several dating back to 2016, that it has not issued final acceptance on. It also told the newspaper that requests like the memo are standard in procurement negotiations between auto manufacturers and their suppliers.
But if Tesla is indeed asking suppliers for money back on past work to help it achieve profitability, as opposed to reduced prices on future work, it adds to concerns about company’s cash flows. It may also make some suppliers reluctant to work with Tesla. As manufacturing consultant Dennis Virag told the Wall Street Journal, “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.”
TechCrunch has contacted Tesla for comment.
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