Tesla shares drop on report that it asked suppliers for refunds

Tesla shares drop on report that it asked suppliers for refunds

Now that Tesla has achieved its target of 5,000 units per week production rate, the company is in a better position to negotiate with suppliers. "It would not be correct to apply historical cost savings to current quarter". The WSJ calls the sum "meaningful", and reports that the refunds are on payments made since 2016.

Morningstar's David Whiston writes that while auto makers face "brutal" pricing demands on suppliers for future work "but retroactive rebates is not something we hear much about, and this is troubling for us to hear".

The carmaker is facing growing investor pressure as it struggles to ramp up the production of what is to be its flagship model, the Model 3, and reverse a loss-making streak that has been with it since its inception. What's more, a recent teardown of the Model 3 suggests that Tesla's mass market EV might be far more profitable than initially anticipated.

Initially, Tesla shares dropped by more than 5% on Monday morning as investors responded to the report, although they recovered some ground later. Mr Musk has said the company does not need to raise cash this year, but several analysts have predicted that the electric vehicle maker would need to raise capital soon.

In a memo to targeted suppliers, management framed the appeal as an "investment", an opportunity to ensure Tesla's continuation and, by extension, its ability to remain a parts buyer. "Suppliers have been asked for reductions, but going back for them in arrears reeks of desperation".

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Cowen analyst Jeffrey Osborne told Reuters that Tesla's supplier explanation appeared "rational", but that there remained lingering concerns.

Not everyone agrees. Ben Kallo, a Robert W. Baird & Co. analyst with the equivalent of a buy rating on Tesla shares, said he thinks the supplier renegotiation is about boosting profits "rather than a necessity for the balance sheet".

In June the company said it was eliminating 3,600 jobs, or 9 percent of its staff, as part of a restructuring effort.

"I'm not sure it's any worse than getting upfront money from your customers", said Levington.

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