By on July 23, 2018

Tesla Model 3

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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85 Comments on “Tesla to Suppliers: Take a Hit to Make Us Great...”


  • avatar
    R Henry

    Tesla suppliers would be foolish to accept reduced payments after-the-fact. They would also be foolish to continue shipping any product unless on COD terms. Suppliers need to lawyer up and start filing lawsuits demanding payment in full. This is gonna get ugly, and it helps to be first in line.

    • 0 avatar
      hreardon

      The surest way for Tesla to hang itself is if suppliers start demanding payment before delivery – or just stop delivering: they’re the ones that generally force a company into BK by refusing to deliver goods, or only upon receipt of immediate payment.

      I suspect that a lot of the top tier suppliers just pooped themselves a bit upon reading this and are indeed lining up to make demands upon Tesla. As R Henry points out above: it’s best to be first in line when it comes to bankruptcy, and a lot of these suppliers have a lot of money on the line.

    • 0 avatar
      RangerM

      Tesla suppliers are probably well aware of the 90-day rule under the bankruptcy laws.

  • avatar
    tsarcasm

    Didn’t Tesla announce a ‘new’ factory in China? Why give a discount when soon, you’ll be replaced…..

  • avatar
    Sub-600

    The NY Post has an Op-Ed today calling Musk a fraud. I know, I know, it’s the Post, but it’s worth a look. His suppliers have got to be shaking like crack babies in a paint mixer, they’re looking at ruination.

  • avatar
    Carroll Prescott

    I’ve long contended that Muskrat is overseeing a ponzi scheme. I seriously doubt he intends on ever concentrating on transportation that is earth bound – he is a glory queen who cannot concentrate.

    Muskrat is a fraud – he may be visionary but it is always with other people’s money and he doesn’t care about quality at all. Just the appearance of being successful.

    • 0 avatar
      hreardon

      I’ve grown tired of arguments that read like “Angry old man shakes fist at meddlesome children”.

      Let’s break things down a bit:

      Is calling him “Muskrat” doing anything other than fanning emotional flames? No.

      Is Musk a fraud and a thief?
      No.

      Here’s what, I suspect, is the real case. It’s nuanced – so let’s try and pay attention:

      Elon Musk is extraordinarily bright, driven, curious and likes pushing boundaries. He’s got a vision that involves building an electric car brand, distribution network, and supply system. He’s running up against manufacturing, finance, regulatory, sales and distribution headwinds. Not only running into them, they’re pushing back – hard. Really, really hard. He’s making risky bets, asking and saying outlandish things, and doing whatever he can to keep the ship afloat.

      Is he doing any of this with malice? Probably not.

      That all said, I don’t believe that Tesla is going to be a viable independent entity. I think that Musk’s hubris has the best of him, and his faith in the Silicon Valley mindset upending the auto industry is as naieve as Steve Jobs wanting to build a factory for the new Macintosh in 1983 that took in sand at one end, and spit out Macs at the other.

      But, I appreciate the chutzpah, the drive and what he’s trying to accomplish.

      I don’t agree with a lot of what Musk says and does, but the keyboard critics are missing the bigger story and focusing on a fisher-price caricature that isn’t advancing the conversation.

      • 0 avatar
        JimZ

        No, he sounds like a lot of people I’ve worked with over the years. Technically brilliant, came up with lots of ideas, but never wanted to work on anything past the “proof of concept” stage. Once their neat new thing became barely functional, they called it done. They wanted no part of the other 90% of the work (turning it into a salable product able to be safely used by the public.) Because that’s *boring.*

        George Hotz is the same way. Got his stupid add-on “self driving” gadget just barely functional, and when NHTSA came by and said “hey, if this thing is going to control cars we have some questions for you” he said “F that” and just dumped the project. (later, people looking at the non-opaque portions of the code that ran it said it was *scary* and nowhere near ready.)

        These are people who think “coming up with an idea” is the hard part. When in actuality, the real hard part is making that idea work in the real world. I wouldn’t be surprised if the problems Tesla is having with the Model 3 are because that’s the way Elon thinks. “Hey, we can build a couple thousand cars a month, so to build a few thousand a week we just do the same thing but a lot faster!” and it don’t work that way.

        • 0 avatar
          redrum

          “Technically brilliant, came up with lots of ideas, but never wanted to work on anything past the “proof of concept” stage.”

          I don’t see how that is accurate when applied to Musk at all. Tesla is WAY past the proof of concept stage (which would’ve been way back in the Roadster days) and Musk is still tightly involved with day-to-day operations as evidenced by him sleeping at the Tesla plant during the push for 5k a week. Heck, he technically didn’t even found Tesla, but has undoubtedly been the primary driving force behind it ever producing more than a prototype. In addition, he’s already built a completely viable and highly profitable company in SpaceX (and before that, x.com/Paypal).

          He’s definitely had issues with over promising/under delivering, but the guy has already delivered far beyond what 99.9% of “visionary”-types promise.

      • 0 avatar
        EBFlex

        “Is Musk a fraud?
        No.”

        Absolutely is a massive fraud.

      • 0 avatar
        tsarcasm

        Yes lets break it down a bit.

        TSLA, has never had a profitable year. It is structurally bankrupt, now he’s asking for money (already paid) back….

        Sounds about right, sell your shorts soon folks!

      • 0 avatar
        arthurk45

        Im still waiting for Musk to do something brilliant, I mean other than
        coming up with yet another scheme that is financed dby govt subsidies.
        We see a lot of actions that show Musk is really, really dumb, beginning with his obvious belief that he has transformed the auto industry. Lower lithium battery prices have done that , something Musk has had nothing whatsoever to do with.

  • avatar
    redapple

    I m a VP of sales at a supplier. My boss’s boss was the owner of the company – a multi billionaire.

    In one of my quarterly business review meetings, he said, ‘under no circumstances will I de-capitalize my company for customer’s benefit.” No. No way. No how.

    F tesla. COD shipments. Or dont ship.

    Customers NEVER have your interests in mind. Grind, destroy, rip you off is their moto. Cheaper now so we can pay the Union $60 /hour (fully loaded.)

    Ask Intermet what GM did to them. Oh. You cant. They ve been bankrupted and liquidated.

    • 0 avatar
      TheEndlessEnigma

      You certainly don’t sound like a VP of Sales.

      • 0 avatar
        arach

        I’m not going to speak about the OP because I don’t know them…

        But at a lot of companies, Sales VP might have been at the company a couple of years and they have a lot of sales VPs.. or a few because they have few customers.

        Often sales VPs aren’t what people think of when they think of “VP”

    • 0 avatar
      bullnuke

      I would be surprised if Tesla weren’t on a COD basis. My old coatings company was on a strict cash before ship basis with Chrysler in the ’90s before the recession and they were at least making some money at the time. There’s a local supplier for Tesla near me where my youngest works. I’m going to ask him if he’s heard anything on the business done with them.

    • 0 avatar
      JimZ

      IIRC a lot of supply contracts are on net D terms (i.e. net 30, net 60.)

      • 0 avatar
        ttiguy

        I have first hand knowledge of how suppliers get paid by OEM’s and I’ll confirm that its paid in full when equipment hits the OEM’s factory dock.

        Red Apple sounds like the fraud….not Elon Musk.

  • avatar
    NoID

    VW did something similar during Dieselgate, but at least their request was to re-negotiate contracts. This seems like a blatant cash grab.

  • avatar
    turbo_awd

    Not sure I have the correct words for it..

    Future discount (like 10% cheaper) due to being a good customer – totally get that. Walmart does that all the time.

    Add a line of credit or something (i.e. give me 3 months to pay, now that we’ve been doing business for 3-4 years), sure..

    Give me back some of the money I paid you 2 years ago?? Wow..

  • avatar
    DeadWeight

    See this for what it is –

    Tesla just used over 4 billion dollars worth of components in operations and, especially, in ramping up Model 3 production, with Musk now holding many Model 3s, sitting in gated lots, that those suppliers supplied components for but have yet to get paid, hostage.

    It’s the most overt and slimy shakedown ever, because Musk is THAT desperate (Tesla’s cash burn rate is 12 million dollars per day, or 4.38 billion per year).

    $TSLA has been cranking out cars 24/7 at 2-3x the rate they can deliver them, turning supplier parts on credit into finished goods.

    Then they turn around and “ask” for a cash back so they don’t default on said suppliers. Y’all just got played

    — I.C.O. 14001 (@eriz35) July 22, 2018

    For those wondering how much money Tesla owes its suppliers, or “ransom” as it is now better known, the answer is $2.6 billion and rising exponentially.”

    “Tesla in memo, asks supplier to return a meaningful portion of money spent since 2016 (and implicitly threatens not to pay them for further parts/components in’amount of about 2.6 billion for part/components delivered during ramp up of Model 3):

    http://www.wsj.com/articles/tesla-asks-suppliers-for-cash-back-to-help-turn-a-profit-1532301091

    “According to a memo seen by The Wall Street Journal that was sent to a supplier last week, Tesla said it is asking its suppliers for cash back to, drumroll, help it become profitable, as if that is somehow the priority of the company’s suppliers.

    And we are not talking about a few cents here and there: Tesla requested the supplier return what it calls a meaningful amount of money of its payments since 2016.

    But wait, it gets better: the memo which was sent by a global supply manager (who will probably be fired shortly), described the request as “essential to Tesla’s continued operation” and characterized it as an investment in the car company to continue the long-term growth between both players.

    In other words, Tesla has given its vendors an ultimatum: give us a haircut, or else we won’t survive, and not only is your business with us over, but all those billions in payables we owe you, well, good luck with the other pre-petition claims in bankruptcy court. Or as one Tesla skeptic noted on twitter:

    TSLA has been cranking out cars 24/7 at 2-3x the rate they can deliver them, turning supplier parts on credit into finished goods. Then they turn around and “ask” for a cash back so they don’t default on said suppliers. Y’all just got played

    $TSLA has been cranking out cars 24/7 at 2-3x the rate they can deliver them, turning supplier parts on credit into finished goods.

    Then they turn around and “ask” for a cash back so they don’t default on said suppliers. Y’all just got played

    — I.C.O. 14001 (@eriz35) July 22, 2018

    For those wondering how much money Tesla owes its suppliers, or “ransom” as it is now better known, the answer is $2.6 billion and rising exponentially.”

    • 0 avatar
      slavuta

      I told you, Musk should be flying through space in his car right now

    • 0 avatar
      hreardon

      Good analysis, DeadWeight.

    • 0 avatar
      Lockstops

      LOL at the lies that “Tesla does not need to raise new capital”!!

      Musk knows he can’t get people to finance Tesla willingly anymore, even the cultist nutjobs, so now he’s forcing the suppliers to finance his ‘almost profitable, really!’ company (ponzi scheme). What a joke.

    • 0 avatar
      Luke42

      We’re waiting for the short range battery pack to buy our Model 3.

      We’re in the market for a $40k EV; $60k is too expensive.

      That said, my wife’s commute is almost perfect for this car. She does 110 miles of highway driving per work-day, so 235 miles gives us a perfect fudge-factor. And I drive it on weekends.

      I expect that the Model 3 car will be perfect for the spot in our household fleet that it will occupy. (The efficient commuter-car spot in our household fleet has previously been held by a 2004 Prius and then a 2016 Honda Civic. The Model 3 will replace the Civic.)

  • avatar
    TMA1

    I’d love to hear from the reservation holders. Anyone planning on dishing out another $2500 in the hopes of maybe getting your hands on one of these things?

    • 0 avatar
      slavuta

      Yes they will. These people are sect. they are believers in “second coming”

    • 0 avatar
      SCE to AUX

      That’s one reason I cancelled in March. I wasn’t going to commit unrefundable money if I can’t even test drive a car.

      Got my $1000 back in 4 days.

      However, those who do pay the $2500 are in the configuration stage of the purchase; there is no “maybe”. They’re delivering lots of Model 3s; one estimate says about 50k so far.

  • avatar
    slavuta

    I always knew it – Musk = commie. Next, he will ask state to give him prisoners for free labor.

  • avatar
    sirwired

    I wonder what Elon’s response would be if asked during another investor conference call how much of his proudly-reported profits came from after-the-fact supplier rebates?

    Seems about as sustainable as their periodic midnight-oil production pushes or a production line set up in a parking-lot tent.

  • avatar
    gasser

    I don’t get it. What is the roadblock to delivering the model 3s that have been built?? Why would they be sitting in lots?? Aren’t they all built to order at this stage?? What’s the big problem?? No delivery network?? Send out emails: Your car is here, come pick it up and we’ll give you a free ticket to Fremont and a tour of the factory ala Volvo and BMW. Guess what, the lot will empty out in a week. I know several people that have a model 3 on order. List on line the cars that are built, but not picked up in 2 weeks and let other customers purchase them on the spot. Inventory is NOT a luxury that Tesla can afford at this point.

    • 0 avatar
      Dan

      Three hypotheses.

      1. Tesla lied about their pre-order numbers the same way that they’ve lied about everything else that they’ve ever announced, and those cars are sitting because there’s nobody to buy them.

      2. Those cars were botched during assembly and can’t be sold until they’re repaired.

      3. Tesla is closer to going under than we think and holding a couple hundred million dollars of inventory is going to benefit some favored entity who otherwise wouldn’t be first in line.

      • 0 avatar
        TwoBelugas

        There are photos floating around of a tesla facility in Lathrop that is a giant parking lot full of Tesla cars and SUVs. It in itself is no big deal since staging cars in Lathrop is smart being neat a major rail access point, but it also has a major Tesla repair center in the same complex. car carrier trucks are arriving constantly and people say they don’t see cars leaving nearly the same rate.

        Oh did I mention the Fremont factory is also very close to rail access, but they are taking cars via carrier over 580 to take them to Lathrop?

        All these things on its own is no big concern for a second glance, but put together and add this news today about suppliers, yikes.

        • 0 avatar
          Lockstops

          Much of this could be their tactic of hoarding finished cars so they don’t go over the threshold that cuts them off from subsidies just yet.

          • 0 avatar
            TwoBelugas

            Why would they hoard them? THey already hit 200k “deliveries” earlier in July so the clock is ticking. lets take an external source

            https://www.theverge.com/2018/7/12/17563908/tesla-federal-tax-credit-ending-date

            “Tesla customers who take delivery of their cars — regardless of whether it’s a Model S, X, or 3 — between now and December 31st, 2018, will still be eligible for the full $7,500 credit from the IRS. Customers who take delivery of their cars between January 1st and June 30th, 2019, will only be eligible for a $3,750 credit. And customers who take delivery of their cars between July 1st and December 31st, 2019, will be offered just $1,875. After that, the incentive is dead.”

            If anything they should be pushing the cars out to customers as fast as they can to get more people to buy them while the rebate is still 7500 until the end of the year.

          • 0 avatar
            Lockstops

            Oh, I missed that the clock is already ticking. My bad.

  • avatar
    EBFlex

    Watching Con Man Musk fail is the greatest show on Earth.

    Tesla and Elon need to go away for the greater good. He’s a fraud.

    • 0 avatar
      TwoBelugas

      this reminds me of the Michael Scott Paper Company episode of the office, where Michael Scott refused to believe there is such thing as a “variable cost” model for expenses when the accountant told him that his fixed cost assumption doesn’t work once they sell more volume at a low or negative margin.

      It’s amusing to think of Musk talking in a manner just like another personality of Michael Scott’s alongside Prison Mike and Date Mike.

  • avatar
    DeadWeight

    He’s gated thousands of Model 3s because he planned to stiff his suppliers all along, and the finished Model 3s held on hand make Tesla’s balance sheet look better than it otherwise would, particularly given that Tesla has yet to pay the suppliers whose part/components are in them,

    He’s a true scumbag and is running a Ponzi.

  • avatar
    DeadWeight

    $TSLA has been cranking out cars 24/7 at 2-3x the rate they can deliver them, turning supplier parts on credit into finished goods.

    Then they turn around and “ask” for a cash back so they don’t default on said suppliers. Y’all just got played

    — I.C.O. 14001 (@eriz35) July 22, 2018

  • avatar
    Garrett

    If they need the cash that badly, they should be offering heavily discounted shares to suppliers.

    Like 60% of market value.

  • avatar
    Sub-600

    You never see Elon and Iron Man together.

    • 0 avatar
      James2

      Well, wouldn’t that be because Stark is on that planet (stranded?) after Dr. Strange and the others disappeared.

      Of course, that gives Elon a fabulous alibi.

  • avatar
    thelaine

    The end is near for the cult of Elontology.

  • avatar
    Fred

    If you can guarantee that Tesla will always be your customer, or close to it, then having a real low price is a good way to keep your factory going. Of course stuff goes wrong and it ends up being a lot of work for little profit. Still we did it for over 30 years of my career.

    • 0 avatar
      MBella

      Yes, manufacturing has unfortunately worked that way for a long time. However, how many times has your customer called you and requested a rebate on parts already deliveredvat an agreed upon price?

  • avatar
    jkross22

    Musk understands the importance of appearances. Vendors should indeed give back something meaningful and let Musk get what he wants. The vendors should then turn around and increase prices on parts equivalent to the public giveback plus 10%.

    Musk gets what he wants and the vendors get a little something for the trouble.

  • avatar
    CombiCoupe99

    This gigantic ponzi scheme looks like it is nearing the toppling point.

    What a mess this is going to be…

  • avatar
    thelaine

    Maybe Jerry Brown will bail him out.

  • avatar

    at least Delorean had Spielberg and Marty McFly for posterity.

  • avatar
    Ol Shel

    Isn’t this an attempt to manipulate the stock price so that they can borrow more against that higher company worth?

    I’d like to think that’s illegal, but this is business… in America.

  • avatar
    indi500fan

    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.

  • avatar
    HotPotato

    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.

    • 0 avatar
      JohnTaurus

      Please show me where Nissan, VW, GM or Toyota have asked for money back on parts already purchased and paid for.

      Did GM have 400,000 orders for cars that it stored for no apparent reason? How funny is it that whenever you’re not ignoring inconvenient facts, you’re twisting and shaping others to fit your “nothing wrong here” narrative? Too bad most of us are pretty well informed on the situation, otherwise your antics might have worked.

      And don’t worry, I’m sure the Chinese will pick up what’s left of Tesla after the bankruptcy.

      • 0 avatar
        HotPotato

        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).

    • 0 avatar
      Brett Woods

      #sootcakedbridge

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