According to the news report by Bloomberg, Tesla Inc.’s shares dropped after it was reported that the electric car manufacturer asked some of its suppliers to give back part of its payments to them. This was done it so that the company could show a profit, according to the Wall Street Journal, who cited a memo that had been sent to one of Tesla’s suppliers last week.
Tesla’s shares fell as much as 5.9% during trading on Monday after the Wall Street Journal released its report. The company’s bonds were also hit by the news.
The company’s stocks fell to $295.64 per share during the morning’s trading in New York. Its bonds, due in 2025 at 5.3%, dropped as much as 1.75 cents, which is the largest drop experienced since May this year. They were last trading at 89.375 cents to the dollar on Monday morning.
According to the letter sourced by WSJ, Tesla, whose cash position is alarming investors, asked its supplier to return a meaningful amount of the payouts the car maker has made since 2016. The letter also stated that the company has asked all its suppliers to help the company become profitable.
Chief Executive Officer, Elon Musk has just recently proudly announced that they had hit their production target of 5,000 cars a week, closing their second quarter on a high note. However, that wasn’t enough to pacify investors and the market.
Doubts are strong about whether Tesla can sustain a 5,000 car-per-week production. This because the company is known for boosting numbers massively increasing production for short bursts. And this is exactly what was done to achieve that 5000-per-week target. A part of that output came from a makeshift production tent that was erected outside the main facility.
While the car maker refused to comment on the memo, Tesla’s spokesperson did confirm that that Tesla was looking for price cuts from its suppliers for some of its projects. And, the company admitted, some of these projects did go back as far as 2016.
And according to Tesla, this all part of the standard procurement negotiation process which helps improve the company’s competitive edge. This would be especially true as the company keeps ramping up production.
On further investigation, it seems that only some suppliers received this request to return a portion of the money paid out to them. Other suppliers seemed unaware of this development.
In Tesla’s defense, this is not the first time an auto maker has asked suppliers to give discounts retroactively. Tatsuo Yoshida, Sawakami Asset Management Inc. analyst, who used to work with Nissan Motor Co. from 1983 to 1999, said that some of the Japanese car manufacturers have taken such steps before.
Another auto analyst, Koji Endo, from SBI Securities in Tokyo, Tesla probably has leverage on those suppliers which could help it gain their support. This is possibly because the one-of-its-kind car maker would need parts that would not be used by other automakers. This would mean that if Tesla were to fail, so would these suppliers.
None of Tesla’s US, Australian or Asian Media offices were available for comment. The only information that given out was company CEO Elon Musk’s tweet on Sunday night, where he stated that only those costs that applied to the third quarter and beyond would be counted, that it wouldn’t be right to count costs savings from previous years in the current quarter.
This post by Elon Musk was in response to a post by Elektrek, who had cited the WSJ article.