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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6 of 85 comments
  • 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).

  • Dusterdude @El scotto , I'm aware of the history, I have been in the "working world" for close to 40 years with many of them being in automotive. We have to look at situation in the "big picture". Did UAW make concessions in past ? - yes. Do they deserve an increase now ? -yes . Is their pay increase reasonable given their current compensation package ? Not at all ! By the way - are the automotive CEO's overpaid - definitely! (That is the case in many industries, and a separate topic). As the auto industry slowly but surely moves to EV's , the "big 3" will need to be producing top quality competitive vehicles or they will not survive.
  • Art_Vandelay “We skipped it because we didn’t think anyone would want to steal these things”-Hyundai
  • El scotto Huge lumbering SUV? Check. Unknown name soon to be made popular by Tiktok ilk? Check. Scads of these showing up in school drop-off lines? Check. The only real over/under is if these will have as much cachet as Land Rovers themselves? A bespoken item had to be new at one time. Bonus "accepted by the right kind of people" points if EBFlex or Tassos disapproves.
  • El scotto No, "brothers and sisters" are the core strength of the union. So you'll take less money and less benefits because "my company really needs helped out"? The UAW already did that with two-tier employees and concessions on their last contract.The Big 3 have never, ever locked out the UAW. The Big 3 have agreed to every collective bargaining agreement since WWII. Neither side will change.
  • El scotto Never mind that that F-1 is a bigger circus than EBFlex and Tassos shopping together for their new BDSM outfits and personal lubricants. Also, the F1 rumor mill churns more than EBFlex's mind choosing a new Sharpie to make his next "Free Candy" sign for his white Ram work van. GM will spend a year or two learning how things work in F1. By the third or fourth year GM will have a competitive "F-1 LS" engine. After they win a race or two Ferrari will protest to highest F-1 authorities. Something not mentioned: Will GM get tens of millions of dollars from F-1? Ferrari gets 30 million a year as a participation trophy.