Tesla: asking suppliers for cash back is 'standard' negotiating strategy

Could Tesla be in trouble

A memo from Tesla has been sent to select suppliers asking for cash back to help it become profitable, according to the Wall Street Journal.

Telsa took another financial hit on Monday, with shares in the electric carmaker dropping nearly 5 per cent after it was reported to have asked some United States suppliers to return payments made by the money-losing company. Tesla declined to comment on the memo, but did confirm that they have been seeking price reductions from suppliers for their recent projects.

The leak came soon after Tesla announced it was cutting several thousand jobs as part of an effort to reduce costs.

Initially, Tesla shares dropped by more than 5% on Monday morning as investors responded to the report, although they recovered some ground later. It suggested that all Tesla suppliers were being asked to make partial refunds, but some of the companies that the WSJ talked to denied any knowledge of such a request.

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Tesla, whose eroding cash position has alarmed investors, requested a "meaningful" amount of payments made since 2016 to be returned, according to the letter. It is spending about $1 billion a quarter as it ramps up manufacturing of the Model 3 sedan, a lower-priced auto that is key to Tesla's plans of becoming a major mass-market automaker.

The request indicates more struggles for Tesla in its quest to reverse losses.

Elon Musk, Tesla's chief executive, wrote on Twitter on July 23: "Only costs that actually apply to Q3 & beyond will be counted". An analyst at Baillie Gifford, Tesla's third-largest institutional shareholder, told the Journal the firm is "divided" on whether Musk is the right leader for Tesla going forward. Tesla's stock prices have taken a tumble since reports emerged about the request.

Despite the belt-tightening, many analysts still predict Tesla will eventually need to raise more money. He has lashed out at journalists for critical coverage of Tesla, and earlier this month he tweeted an unfounded and disparaging claim about a cave diver who participated in the rescue of a Thai soccer team.

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