Tesla to Suppliers: Take a Hit to Make Us Great

Steph Willems
by Steph Willems
tesla to suppliers take a hit to make us great

Agreements forged between automakers and suppliers aren’t etched in stone, and shaky financial ground has a way of altering how and when those suppliers are paid. Look back to the recession for prime examples of that.

However, a memo sent from Tesla to a supplier shows the electric automaker wants to recoup a portion of its previously spent cash — a request designed to help Tesla finally turn a profit.

The memo, reviewed by The Wall Street Journal, asks the supplier to return a “meaningful” amount of money paid out since 2016. Other suppliers will be asked the same thing, the memo states. With the automaker aiming for a positive cash flow in the second half of this year, asking suppliers to return some of the money they’ve been paid would help it reach its goal, assuming they comply.

The WSJ report doesn’t mention how many suppliers received the request. Tesla’s supply chain partners include, among others, Panasonic, Magna, and Robert Bosch GmbH.

Asking for a refund isn’t the only way Tesla’s attempting to firm up its financial footing. At the end of June, the automaker opened orders to all Model 3 reservation holders (minus those waiting for the much-ballyhooed $35,000 base model) in the U.S. and Canada. Having already paid a $1,000 reservation fee, these would-be buyers were asked to pay $2,500 to confirm their order. Standard practice, Tesla says.

What’s not standard practice is demanding a retroactive price reduction on past work. From time to time, automakers might negotiate for a price reduction on a current contract, but the savings would only be realized on future work.

Via Twitter, Tesla CEO Elon Musk said, “Only costs that actually apply to Q3 & beyond will be counted. It would not be correct to apply historical cost savings to current quarter.”

As you’d expect, many see the memo as a sign of serious trouble. Just how depleted is the company’s cash situation, and how will this impact the company’s attempt to ramp up Model 3 production? “It’s simply ludicrous and it just shows that Tesla is desperate right now,” manufacturing consultant Dennis Virag told the Associated Press (via The Los Angeles Times).

Of course, if certain suppliers are beholden to Tesla for their own futures, complying with the request won’t be a difficult decision.

[Image: Tesla]

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  • Indi500fan Indi500fan on Jul 23, 2018

    I'd not heard about the massive vehicle numbers in storage, but my take would be they all need rework/repair before being ready to ship. Even the brilliant folks at Musk Motors sometimes can't fix all the problems with an over the air software update. There's no other reason Musk would hold back from collecting $$$$ from the customers at delivery.

    • JohnTaurus JohnTaurus on Jul 24, 2018

      But, but, but GM did it under completely different circumstances! And the Model T Ford wasn't built in a day! Or something.

  • HotPotato HotPotato on Jul 24, 2018

    oh please. Nissan, VW, GM, and even almighty Toyota have all pulled variations on this, squeezing suppliers one way or another. When it happens at an established automaker, it's "All hail Le Costcutter!" When it happens at Tesla, the trolls emerge from under their soot-caked bridges to chant "Ponzi!" I'm sure that being a then-new automaker, Tesla years ago had to agree to unfavorable terms to get parts suppliers to risk working with them. Now that they're finally meeting their production targets for a model with massive orders, it's not totally crazy if they'd like a bit of the coming windfall back, especially since they've been clear with everyone that the Model 3 is their make-or-break product. What's the evidence of this alleged backlog of cars? And who says it means anything in particular? GM had a big-ass yard of Bolts when the model was new too. I'd guess it has more to do with inspections, some rework, and batching cars to ship them to similar destinations economically, but I don't know, and neither do any of the other commenters on here. Given that the government of China has declared world leadership in electric cars a strategic priority, you'd better pray that Tesla survives as an independent American company, because the alternative isn't bankruptcy and no more pressure on legacy automakers to innovate (change is haaaard!), it's Chinese ownership and America surrendering its technology lead in YET ANOTHER industry, and that would be just plain dumb.

    • See 2 previous
    • HotPotato HotPotato on Jul 26, 2018

      @JohnTaurus Do not attack me personally. I did not attack you personally. I clearly said “some variation” on pressuring suppliers for savings or claw backs, not this exact strategy. GM had 50 states and numerous foreign countries to send the cars to, and in some (Korea, Canada, anywhere in Europe) the waiting list is even now months long, so yes, they had orders. I clearly said that Chinese ownership of this company would be bad for America and that’s why we should on some level want it to succeed, even if we don’t care for Musk (I do not, his personality reminds me a bit too much of a certain other bombastic Twitter user).

  • Jim Bonham Full EVs are not for everyone, they cannot meet all needs. Hybrids do a much better job of providing the benefits of EVs without most of the drawbacks. I have a hybrid sedan with plenty of room, plus all the bells and whistles. It has 360 hp, AWD, does 0-60 in just over 5 sec.(the instant torque is a real benefit), and I get 29 mpg, average. NOT driven lightly. I bought it used for $25k.Sure, it's a little heavier because of the battery, motor, etc., but not nearly as much as a full EV. The battery is smaller/lighter/cheaper and both the alternator and starter motor are eliminated since the motor assumes those functions. It's cool to watch the charge guage show I'm getting energy back when coasting and/or braking. It's even cooler to drive around part of the time on battery only. It really comes in handy in traffic since the engine turns off and you don't waste fuel idling. With the adaptive cruise control you just let the car slowly inch along by itself.I only wish it were a Plug-in Hybrid (PHEV). Then, I'd have A LOT more EV-only range, along with even more of that instant torque. The battery would be bigger, but still a fraction of the size of a full EV. I could easily go weeks without using much, if any gas (depending upon my commute) IF I plug it in every night. But I don't have to. The gas engine will charge the battery whenever it's needed.It's just not as efficient a way to do it.Electric companies offer special rates for both EVs and PHEVs which lower your operating cost compared to gasoline. They'll even give you a rebate to offset the cost of installing a home charger. You can still get federal (up to $7,500, plus some state) tax credits for PHEVs.What's not to like? My next daily driver will be a PHEV of some kind. Probably a performance-oriented one like the new Dodge Hornet or one of the German Hybrid SUVs. All the benefits, sound, feel, etc., of a gas vehicle along with some electric assist to improve fuel economy, performance, and drivability. None of the inherent EV issues of cost, range anxiety, long charging times, poor charger availability, grid capacity issues, etc. I think most people will eventually catch on to this and go PHEV instead of going full EV. Synthetic, carbon-neutral eFuels, hydrogen engines, and other things will also prevent full EVs from being 100% of the fleet, regardless of what the politicians say. PHEVs can be as "clean" (overall) as full EVs with the right fuels. They're also cheaper, and far more practical, for most people. They can do it all, EVs can't.
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