Tesla Stock Stumbles as Company Asks Suppliers for Help Turning a Profit

24 July, 2018, 01:43 | Author: Mary Valdez
  • Tesla Asks Suppliers for Cash Back in a Bid to Achieve Profitability

"Negotiation is a standard part of the procurement process, and now that we're in a stronger position with Model 3 production ramping, it is a good time to improve our competitive advantage in this area".

"The auto maker's memo, sent by a global supply manager, described the request as essential to Tesla's continued operation and characterized it as an investment in the vehicle company to continue the long-term growth between both players", reports The Wall Street Journal. The memo came from a global supply manager and said the request was essential to Tesla's continued operations, the Journal said. The memo said all suppliers were being asked to help the company become profitable.

Efraim Levy, a senior equity analyst for CFRA, said he found Tesla's request unusual.

It is unclear how much cash back Tesla has requested, or how many of its suppliers have received this request.

The leak comes as Musk continues to unnerve investors, with Tesla shares falling from a year high of US$370 in mid-June to around US$301 on Monday.

Separate from today's news, Whiston also lowered his Tesla fair-value estimate to $179 from $235, citing Chief Executive Elon Musk's recent comments in which he said that that he doesn't envision the company producing mass-market volume of any one particular model.

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"I haven't heard of this being done before, and I've been following the industry for 20 years". "It sounds like something that happens when you're struggling".

Itay Michaeli, an analyst for Citi Investment Research, said automakers sometimes ask for discounts from suppliers, but those are relatively minor matters.

In early May, Musk cut off a Morgan Stanley analyst who'd asked if the company should raise more capital while it could even if it doesn't need it. Musk responded that he "specifically" didn't want to, and called the analyst's questions "so dry". Tesla has been burning through cash at a rate of about $1bn a quarter, or more than more than $7,430 every minute, according to data compiled by Bloomberg, and finished the first quarter with $2.7bn in cash on hand. One way to do that is by selling stock, which could send its share price lower still.

After the memo was leaked over the weekend, Musk tweeted: "Only costs that actually apply to Q3 & beyond will be counted". But they said if Tesla has to try this hard to meet its target, it might be a self-defeating effort.

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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