UPDATE – Tesla Banking On Suppliers To Turn Profit Later This Year



Asks for money back.

After having declared that Tesla would show a profit in the 3rd quarter of this year, CEO Elon Musk is on a cost-cutting binge. After slashing the workforce of the automaker by 9 percent, his waste-withering gaze has now been cast upon the supply chain.

***UPDATE – New Tesla response to WSJ at bottom of this article.

According to reporting by the Wall Street Journal, a leaked memo reveals that at least one supplier has been asked to “return what it calls a meaningful amount of money of its payments since 2016.” There has been no mention of the exact amount of money involved here, nor what percentage of previously invoiced goods or services is being sought. Although the missive allegedly states that all Tesla suppliers are being asked to make the same financial sacrifice, the publication was unable to discover whether other suppliers had received a similar memo, despite making a number of attempts.

It would seem that the cost-cutting move is real enough. Musk himself confirmed as much when, in response to a tweet about the story by the blog Electrek, he responded with a tweet (embedded below) of his own about the measure, saying, “Only costs that actually apply to Q3 & beyond will be counted.” He went on to say, “It would not be correct to apply historical cost savings to current quarter.

While one might expect Wall Street to embrace aggressive cost-cutting measures such as this, the initial reaction was far from positive. Shares in TSLA were down sharply this morning — in excess of -$16 in early trading — though now it appears to have risen back above the $300 mark as of this writing. The company’s the 2nd quarter earnings will be published in a little more than a week from now. It is widely expected to, once again, show considerable losses

UPDATE – WSJ Contributor Tim Higgins has just tweeted out this response from Tesla to his article.

“Negotiation is a standard part of the procurement process, and now that we’re in a stronger position with the Model 3 production ramping, it is a good time to improve our competitive advantage in this area. We’re focused on reaching a more sustainable long term cost basis, not just finding one-time reductions for this quarter, and that’s good for Tesla, our shareholders, and our suppliers who will also benefit from our increasing production volume and future growth opportunities.

We asked fewer than 10 suppliers for a reduction in total capex project spend for long-term projects that began in 2016 but are still not complete, and any changes with these suppliers would improve our future cash flows, but not impact our ability to achieve profitability in Q3. The remainder of our discussions with suppliers are entirely focused on future parts price and design or process changes that will help us lower fundamental costs rather than prior period adjustments of capex projects. This is the right thing to do.”


Source: Wall Street Journal

Categories: Tesla


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113 Comments on "UPDATE – Tesla Banking On Suppliers To Turn Profit Later This Year"

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Hey, I bought some tablets from Google a couple of years ago, but I want to ask for a refund since they are no longer performing like I think they should. Same with my smartphones I bought in 2016.
That’s basically what Tesla is doing here. Dafuq?

haha! Tesla fans trying to spin this to a good thing are funny… Everyone in business knows, if suppliers give Tesla kickbacks now, it is on the guarantee of higher prices later… Just a shuffling of the deck, no structural change in the business long term. Tesla is working overtime to engineer a profit in Q3 and Q4…. Investors are not going to fall for that nonsense, the same way they laughed off the 7K burst rate Tesla has not been able to repeat.

Tesla is quite good at engineering…all kinds of engineering. I’ll give them that.

You’re wasting your foul breath here Bro.

@David Green said: “… suppliers give Tesla kickbacks…”

Tesla’s negotiations with vendors has nothing to do with “kickbacks”.

Hard to believe that @David Green is that ignorant… must be intentional misuse of a word.

“kickback: …a payment made to someone who has facilitated a transaction or appointment, especially illicitly…” source: google dictionary

I read this in Investors business daily… key quote being ‘Essential to the companies continued operation…’ Thats a bombshell.

“A Tesla global supply manager reportedly sent the memo, and called the request essential to the company’s continued operation. The manager characterized it as an investment in the car company. He added that it was necessary to continue the long-term growth between the supplier and Tesla.”


Would be pretty hard to spin that line….though the TSLA diehards will dutifully try anyways! *popcorn*

Tesla’s taking it on the chin, and yet there’s still just a Bolt in your driveway..

You say that like it’s a bad thing?

It’s absolutely NOT a bad thing. That’s why I find it so strange that you’re so unhappy with it, to the point that you camp out at InsideEV’s in order to run down Tesla- like it will somehow improve your Bolt. You’re happy with your car (as you should be), the Bolt is a great car. As I’ve mentioned before earlier, I test drove and almost bought one. But it’s not as good as a Tesla for many reasons. But the Bolt didn’t cost as much as a Tesla, either. It’s a trade-off. And as I’ve told you many times in the past, we’re all (allegedly) on the same team, but folks like you think it’s somehow a battle between one EV compared to another. Akin to, “My dad can beat up your dad.”

And for the record, my second vehicle is a GM Volt. Again, we’re on the same team.

Have a great day.

If it weren’t for commenters like me, this place would capsize with all the TSLA blowhards populating the place. I bring needed balance to this site. 🙂 Even then, it’s not nearly enough.

Absolutely true statement…

Well thought out comments are one thing, biased and snarky pot shots are another. Labeling folks who appreciate Tesla as ‘blowhards’ is another, non balanced comment. You’re FAR from balanced, if you were we’d hear you speak across the entire spectrum of Tesla, from their bad financial decisions and failures to their successes, of which they’ve had many. You don’t ever speak about their successes. Your anti-Tesla agenda is very obvious, as are your biases. Your self-aggrandizing for bringing “balance” to the EV discussion is only appreciated by folks like David Green and SevenElectrics- fellow “balancers.”

I have complemented Tesla, Just today as a matter of fact, to one of your posts I commented Model 3 was not bad… actually pretty good, and quality is improving… Thats a compliment where i come from…

Haha! Sure, I’ll give you credit where it’s due. I stand corrected. And for the record, I was actually responding to bro1999. I’ve yet to see one positive comment in the “balance” he alleges he brings to this site. In that regard, you’ve got him beat by 100%

You obviously misread what I posted. I didn’t say I post balanced material, I said I balance out the Tesla cultist crowd on IEVs with my comments. Learn to read. 😉

You wrote: “Your anti-Tesla agenda is very obvious”

This forum is for all people, who are interested in EV’s. I know that many people these days find free speech offensive, but it’s kind of how public discourse works: some commenters are “for”, others are “against”, still others are ambivalent etc. And you can’t really expect bro1999 or, for that matter, anyone to speak about Tesla successes if he doesn’t feel like doing so.

Fair enough Dimitrij. At the same time, when the majority of us are actually here to discuss and share information regarding EV’s, you can’t expect folks like me to not speak up against folks like bro1999 and SevenNations when they make blatant attempts to hijack constructive conversations and turn them into purely negative Tesla-bashing sessions. There’s a certain expectation of decorum that used to exist here, and you’re right-there’s a small segment of negative personalities that love taking advantage of the freedom Steve Loveday allows here for the purpose of crushing conversation. For what reason, I still don’t understand.

Apart from the “majority of us”, this forum has a large cohort of those, who amuse themselves by disparaging non-Tesla EV’s, and especially the Bolt, which is its “penalty”, I guess, for beating TM3 to the US mainstream middle market by 18 months or so. Also, Mr. Musk is known for occasionally badmouthing things and people.

With this in mind, bro1999’s clearly Tesla-critical stance is, I believe, useful for balancing this forum out 🙂

Again, I’ll have to respectfully disagree. “Balance” isn’t achieved through equally opposing biased negative mud-slinging from either the anti-Tesla or anti-anything-but-Tesla members. It’s achieved somewhere in the middle by folks who look objectively at topics, not subjectively. It’s unfortunate, because this site becomes a microcosm of our own, extremely divided society. The United States is either hard-core Neo-Cons or Ultra-Libs, with no tolerance for the middle. There’s not even a break from it something as benign as an electric car website.
It’s pretty sad to see this site evolve into 2 camps: Pro or Anti Tesla..

When is the last time we saw anyone post a disparaging remark about the Bolt EV?

Now, when is the last time we saw someone post a disparaging remark about Tesla or its cars? (Just look up or down a few posts here, you’ll see one!)

This is yet another case of false “balance”. Nobody gets balance from a FUDster; from someone who constantly repeats his negative talking points and never listens to any other viewpoint.

There are several anti-Tesla FUDsters among the Usual Suspects here. There is not one single anti-GM FUDster. No FUDster ever brought “balance” to anything.

The seats and not having a network is always mention on the Bolt

Or ACC, or cheap hard plastic abounding, or Honda Fit/Nissan Versa size and appeal but for a price point that enters luxury segment at the low end. GM can easily be faulted by any EV enthusiast. To believe as bro1999 does, that Volt and Bolt absolves GM of all their past EV-1 sins is psychotic. To this day, GM fights Tesla not with product but in court. Not enough has been written about the very ugly truth that the General is funding several different state auto dealer association’s court battles to prevent Tesla from selling in their states. GM admitted to as much so not to spread gossip. As part of the Auto Alliance, GM daily fights all state, federal and international mandates for higher MPG and less cars that spew C02. How can GM build EVs and simultaneously use their massive wealth to bring down the laws meant to spur EV production? 20-30,000 cars per year does not change the world. Bro 1999 and his cohort Tesla bashers take you and me for fools. Name one other company who plans to build 500,000 EVs per year and is well on the road to doing it. Bro 1999 seems intent… Read more »

Seats and not having a network is “always” mentioned on the Bolt? Your comment is literally the first time I see these things mentioned here, in several weeks of comments. About the most negative thing said about the Bolt I see here is pointing out that it’s a compliance car. I have seen hundreds of Tesla-bashing comments in the same time period, attacking the products, attacking the company, attacking its CEO. Talk about “balance”.

Great post. 🙂

Personal attacks are for bullies, plain and simple. Address the arguments, please. That is the basis for rational debate.

FUD is not debate, rational or otherwise. It is a disinformation strategy, which on InsideEVs and other forums is used to attack Tesla.

And if you yourself were not a FUDster, you wouldn’t claim otherwise.

“This forum is for all people, who are interested in EV’s.”

That’s perfectly true. This forum is not for people who aren’t interested in EVs, but are only here to attack one single company: Tesla. There’s a very wide gulf between conversation and a trollish disinformation campaign.

Oh how important you are in your own mind:)

Keep up the good fight. Realize that most commenters come here not to have their beliefs challenged, but to get their rocks off. In another universe, they would be clicking on Breitbart or Fox News.

@bro1999 said: “… I bring needed balance to this site…”

Hot air does not serve well as a counterweight…

Bro1999 is really Bob Lutz so don’t waste your time LOL CONNECT THE DOTS ON CLEAN AIR WAKE UP FOLKS thanks co2.earth

No, MadBro, you are the one who constantly keeps making whining posts expressing sour grapes over getting a Bolt EV instead of a Model 3… not us!

Okay, we got it, you are really really mad that you got a Bolt EV instead of the Model 3 you wished for. Give it a rest already!

Yes, I regret getting a Bolt over the still fictional SR Model 3. Lol Good call.
Those fictional EVs beat the Bolt and everything else at ownership costs though! You got me there.

No credit for doing my part?

It makes sense for Tesla fans to comment on articles. What went so wrong in your life that you have to stoop to reading articles about a company you hate and spending time commenting?

That’s what I’ve been saying, Amen.

Look at the articles posted on this site. I would say the majority (over 50%) are Tesla-related, so you run with what you’re given!
Once again, if you fanbois want an echo chamber, please check out the blog electrek.co


LOL. Or standard negotiation tactic.
Wow, the Shorts are Desperate for anything.
50,000 Model 3’s sold.
That must hurt.

And 0 $35k Model 3s delivered like Elon promised.

He hasn’t promised the $35k model until next year (latest estimate)

I guess one can argue what a promise is, but here is my prospective:

I had had a TM3 reservation for a year or longer. Every time there was an update on the “estimated delivery time”, I made a screenshot. The earliest for the $35K version was April of 2018, I think. Then it gradually drifted to June-July, and then I lost interest and requested my refund.

You and many others stopped chasing the mirage that is the 35K model 3.

Going by the number of reservations actually cancelled, not nearly as many as all the whining here would suggest.

11 months ago Model 3 FAQ page said $35k version would be available in November, 2017. In October they changed it to 1Q18. As far as I can see they no longer mention it at all.

Yep, they basically deleted all mentions of the $35k Model 3 from the Tesla website.

The $35 k Model 3 is likely perpetually stuck in the “6-9 months” window. Or Elon’s favorite “3-6 months” timeline he uses so often!

50K not sold yet, they just build the 50K model 3 over the weekend.

Simple solution, stop reading investors.com

@David Green said: “… Thats a bombshell…”


@David Dramatic Green…

Drama queen.

Were you looking in the mirror when you typed that last comment?

Why do people feel necessary to publicize their ignorance?

You are so astoundingly anti-Tesla that you can’t wait to be the first to post your usual worthless trashing of Tesla. You must sit at your computer in anticipation of some Tesla related (or not) article in order to rush to your keyboard to post your next trashing of a Tesla.

You have a poor sick life, and I pity that you spend your time posting this clearly twisted crap. You must get some sexual thrill by your constant bashing of Tesla. You certainly get off on any reaction to your constant bashing, because that is what trolls want. There is really no other way to explain your deviant desire to troll everything Tesla. Seek help.

When the shorts give you a BARGAIN take it.
This is an incredible SALE on Tesla Stock.

A 3.8% drop in price isn’t really a big deal.
Anything below 3% is noise. So, the shorts only got a .8% drop in price.
Never the less, it’s rare for Tesla to be below it’s 200 day moving average of $321.

Apparently, it is normal business practice.
After you’ve proven your volume shipments, you get the volume discount.
For the WSJ to “pretend” they don’t know standard purchase agreements is Laughable.

Those that were able to add TSLA, this morning below $299.00, are the ones that are “having their cake, and eating it TM3” today.

Always nice to have a bake sale, to start off the week!

I am confused on this subject. Are they cancelling orders with suppliers that they had to pay up front for? Are they asking for a refund for services rendered? Are they asking for a loan from their suppliers? I don’t understand how, or why suppliers should give them money back.

Anybody really understand this?

Tesla is asking for rebates, on already delivered products…

Renegotiating contracts happens all the time. But the part about Tesla asking for refunds retroactive to 2016 of already paid-for supplies is what the bizarre wrinkle is.
The fact Tesla stated in the memo that these “refunds” are “essential to Tesla’s continued operation” paints the picture of a cash strapped company that’s checking under the cushions for every last penny.

That is desperate. Basically, investors said- “We want to see Tesla profitable in the 3rd and 4th Quarter” and Elon said- “No problem, we will do it” and now it’s clear that Tesla can’t do it with traditional means so they have to go and beg for charity from their suppliers. I would think investors would see through this charade.

I guess the threat is, if they don’t give Tesla the refunds, then Tesla might tank and then they wouldn’t get anymore contracts going forward. On the other hand, they could just risk it and if Tesla tanks, then they could just do business with whoever buys Tesla in the future. However, I would imagine that whoever buys Tesla would play the “We’re trying to salvage a distressed company” card and demand discounts, or worse, move the whole damn thing to China.

Tough call for the suppliers.

Sure didn’t take long for your point to be proven wrong. Read the update.

How embarrassing! If I were you, I’d look for another line of work. But maybe you’re not qualified for anything other than spreading FUD?

I wouldn’t be so quick to jump to those conclusions. The statement is worded very carefully and specifically stated “The remainder of our discussions” will focus on the future savings, leaving open the possibility previous discussions covered asking for money back in some way shape or form. The first part of the statement does clarify a bit that these funds seem more project related, maybe in regards to increasing capacity, that will be delayed/offset until a more stable time period.

You mean a time period, where another looming escalation, in the freshly started trade war, and economic sanctions, is just around the corner?

Not to mention the mounting tension with Iran, and the strategic alliance between the US and the U.K.

Crucial are their ME alliances with key energy suppliers, that they rely on heavily, in the navigability of their O&G shipments, through the Strait of Hormuz.

You seem obsessed with embarrassment. It’s a good line, but not when used every time.

Oh, I think it would be quite appropriate to repeat it every time you repeat your Tesla-bashing FUD.

To paraphrase a comment above very slightly: “Why do people feel compelled to publicize their ignorance?”

Yeah, that’s a perfect response to every single comment from your constant barrage of FUD, Eleventy Pretend Electrics! And the FUD from your fellow Usual Suspects, too.

How am I proven wrong? Sounds like they are asking to change the contracts with ten suppliers that started in 2016. It still sounds like they want some money back. BTW, what line of work do you think I’m in? Professional electric car blog commenter? I guess your job is cheerleading?? IDK.

Don’t question TSLA fanboi “logic”. 😉

Tesla asked probably 10 of the biggest suppliers to give them retroactive discounts….you wouldn’t bother to ask small fry suppliers for such discounts. The WSJ story was 100% confirmed by Tesla’s statement.

The suppliers get the business either way…. Most of Tesla’s suppliers supply Tesla, and most other OEM’s… The one that could possible help Tesla the most is Panasonic, but with Toyota setting up to acquire Panasonic I do not see that happening.

I’m by no means an expert: but going by the various replies and updates, my current interpretation is that when Tesla originally ordered parts for the Model 3, because the suppliers weren’t convinced Tesla would actually buy a sufficient number of the parts to compensate for the CapEx, they asked Tesla to cover part of their risk. Now that Tesla is actually buying the parts in larger numbers, they are basically asking for this risk coverage to be returned. I wouldn’t be surprised if that option was actually part of the original contract.

The scenario you describe would still seem strange. If the supplier was worried about projected volume they would increase the piece cost of the parts to cover the investment. If they now feel comfortable with the production volume the piece cost would be negotiated to a lower price. I cant think of a legitimate reason for Tesla to ask for a “refund” unless the supplier in question is not necessarily a parts supplier but an equipment manufacturer/engineering service provider that they awarded funds too but then later told them to hold on spending the funds based on circumstances and then asked for the funds back because they no longer wanted to move forward with the proposed project. But I still wouldn’t consider that a refund, it would be more of a modification of scope with an accompanying adjustment of costs.

To simplify my thoughts, it would be strange under any circumstances for Tesla to ask for previously paid funds back from a supplier. If they paid the supplier in the first place it would signal that Telsa considered the services/obligations of the contract to be met. They can always renegotiate future costs but it would not be normal to ask for money back if already paid out.

Sure, it’s simple. Now that Tesla has substantially ramped up its production rate on the Model 3, they’re renegotiating their contracts with suppliers, based on a higher volume. A higher volume means a lower unit price; not in every case, but in many or perhaps most cases. You’ve heard of “the economy of scale”, right? That a higher volume means lower unit price? Well, this is that in action.

Renegotiating contracts when substantially increasing an order is, of course, standard business practice for manufacturers. The anti-Tesla FUDsters are trying to spin this as “kickbacks”, as if it’s somehow dishonest or at least shady, which would be laugh-out-loud ridiculous (or Ludicrous™) if they didn’t keep disrupting meaningful discussion by constantly posting FUD.

What amazes me is that this is apparently standard practice in the auto industry, but WSJ spins it like they’re only doing it out of desperation, and all the other media outlets (Reuters, CBS, CNBC) jump on it and with the same or similar headlines, citing WSJ but not fact-checking. And I don’t think anybody has seen this leaked memo in context.

By “standard practice,” it’s my understanding that auto manufacturers negotiate a reasonable initial price for a new product/line, not knowing if it will be successful, then renegotiate or agree in advance that the price/unit will go down if it reaches economies of scale. That way, the supplier is not on the line for R&D costs if the product doesn’t sell.

I’m not so sure about this “asking for a refund;” again, I’ve not seen how the memo is phrased, but one would think the cost moving forward would drop accordingly as opposed to an up-front refund. Without the memo, we can’t be sure how it was worked out or even phrased, but again, WSJ is not sharing the details; they’re just putting a negative spin on it.

Tesla confirmed they asked suppliers to retroactively discount already paid for parts. Whether that means an actual cash kickback or just a credit towards future purchases, it means the same thing for the bottom line. And if you knew the first thing about journalism, it is you don’t give up your sources. Please get a clue. If the WSJ published the full letter (even if info is redacted), Tesla could likely easily determine who the supplier was and “punish” them for leaking such documents.
Tesla is asking suppliers to sacrifice their profits so Tesla can make one in Q3. Very nice offer of Tesla!

The “refund” is the topic of discussion, which is clearly identified in every article mentioned as the point of concern. You may have reservations regarding the accuracy of the article, which is fair, but to claim that everything is standard practice is wrong based on what was reported. Unless you are actively engaged in the discussions between Tesla and its suppliers you don’t have anymore information to go off of than the rest of us. Also, by you stating that something is “apparantly standard practice” shows you have no prior knowledge /experience with these type of deals so please dont pretend to be an authority on the issue. If you dont trust the info just state so and hopeful provide justification as to why you doubt it but don’t dismiss what seems to be a legit concern.

Normally, a production contract is set up in 3 ways. 1. A fixed price pr product. Not very common in industries where there are volume gains (lower cost pr product made), where moulds and equipment costs are paid down over a period of time – and production is (usually highly) automated. 2. A starting price for a set number of parts, and then after a set number the price will be lower. After even more parts, price may be even lower. There are usually a timeframe included as well. 3. A contract with a set product price, and then a cash back (sometimes called a kick back. . Even though it is a normal cash back) is given after certain volumes are reached. This cash back is sometimes prefered by some manufacturers. There are usually several steps where they pay money back. In real life, contracts can include several types, and a lot of technicalities and assurances. There are special people that help purchasers and manufacturers with these contracts. They can be highly complex. That is kind of the norm. To ask for a cash back after a contract is signed, is not normal. But I have seen it done,… Read more »

“What amazes me is that this is apparently standard practice in the auto industry, but WSJ spins it like they’re only doing it out of desperation…”

Sadly, this type of FUD has been standard practice for years among anti-Tesla FUDsters: To try to twist a description of a standard business practice into something which sounds “bad” or at least “strange” just because Tesla is doing it.

Sad that the Usual Suspects here are not merely willing, but eager, to stoop to such low and despicable FUD, propaganda, and — let’s be honest here — outright lies.

What was normal when I worked as a tier 2 supplier was price reductions for each year the job ran. The assumption was the parts got cheaper to run as you made more due to learning how to optimize the proces. The problem was everyone just built in a higher cost at the beginning to cover the reductions.
The whole premise was wrong as costs really don’t go down over time. Labor goes up, materials usually go up.

I’ve also noticed that this kind of thing always seems to happen on a Friday, so it can generate a lot of bad buzz over the weekend in order to force a stock price dip first thing on Monday, before any of it can be properly refuted.

Might want to loosen your tinfoil hat there buddy.

So you’ve never heard of the Friday afternoon news dump?

Friday is normally the ideal time to release BAD news, because everyone takes the weekend off and hopefully by Monday, something new has popped up to distract people from your revelation. If you want maximum exposure, you release information on Monday morning.

Remember Mr. Chano’s short record is: HORRIBLE.
He’s apparently 50% under the returns of a Standard S&P 500 Index Fund.
No wonder he’s mad.
He also shorted the FANG stocks and they’ve had most of the stock market returns of the year.
In other words, if you’re in Chano’s fund you’d be better off in a Stock Index Fund, with NO RISK that this guy bankrupts you.

An index fund does NOT have no risk. Just the risk of the general market which can be huge (think 2008-9) or moderate.

My understanding, however, is that hedge funds as a general class have lost their outperformance and then some relative to the general market in recent years.

As someone pointed out in another discussion, the purpose of a short fund is not to outperform the market in normal conditions. Rather, it allows investors to hedge their bets: if the market crashes, and they lose a lot on their regular investments, at least the short fund stake makes up for some of it…

That’s why Chanos is betting against companies he believes are dependant on capital markets for their regular operations: when the market crashes, and capital supply dries up, these will be the first companies to die. His error though is treating Tesla as a company dependant on the capital markets for survival: while a lack of fresh capital infusions would hamper their future growth projects, it wouldn’t kill their current operations.

Another case of Tesla doing something that is industry normal to be twisted as somehow abnormal/desperate because it’s Tesla doing it.

Tesla is not asking for a vendor refund.

Tesla is asking for a going forward purchase discount formulated on past purchase volume to be applied to Q3 and forward which in actuality is a more lenient ask than requesting a discount based of future projected purchase volume.

The WSJ spin on this topic seems to be purposefully spun in the opposite direction from reality… I’m starting to think Chanos has friends at WSJ.

This was written by Tim Higgins, who I don’t believe would purposefully mislead. It would be nice to see the memo, though.

OP Domenick Yoney said: “This was written by Tim Higgins, who I don’t believe would purposefully mislead…”

Perhaps not purposely…

I’m pretty sure everyone strong-arms their suppliers.

Wouldn’t bank on much savings going forward. Materials are way up, labor costs up, freight rates at all time high and energy costs rising.

Exactly Bunny, costs are through the roof right now, and interest rates are up too… Tesla is getting pressure from many directions.

Here’s the most interesting line in the WSJ article: “Tesla will need to pay down a $230 million convertible bond this November if its stock doesn’t reach a conversion price of $560.64, and a $920 million convertible note next March if the stock doesn’t reach $359.87.” If Tesla doesn’t hit those pricing points (especially that $360 one), they have to pay up a LOT of money…money they don’t have unless they raise more capital/borrow more money…something Elon has said Tesla absolutely does not need to do. People accuse the shorts of trying to spread lies/”FUD” to tank TSLA’s stock. Elon, Tesla, and all those TSLA diehards have EVERY MOTIVATION to do whatever it takes to inflate TSLA stock as much as possible, putting the best possible light on Tesla no matter what. Reverse FUD, or whatever you want to call it. I’m sure they don’t mind spreading equally misleading information that benefits Tesla. When you have a CEO that flaps his lips and makes promises he can’t keep (and whose compensation is directly tied to the company’s stock value), this is the situation you end up in. You can sorta look at it like the light side vs the dark… Read more »

It Tesla fans were more balanced, and realistic, there may be far less FUD out there, but Tesla fans bring on the attacks by trying to fight the facts. Tesla’s financials suck, that is a fact no matter which side you are on. They are desperate to engineer profit to pump the stock, and convert at least the $920M next March.

Go back to school and study exponentials, please.


@bro1999 & @David Green getting deep into the weeds about Tesla convertible debentures…

Using esoteric financing jargon that only matters to a handful of Chanos Wall Street Tesla shorters desperately looking for any chance to call a normal occasional passing light rain a biblical flood….

How desperate they most be to try convincing a bunch of Tesla fans on an EV enthusiast site (many that own Tesla cars and love them) that the Tesla sky is falling… comical.

Elon said they don’t need to raise money *this year*; so that doesn’t even apply to the March bond. Also, March is still far off — saying they don’t have the money at this point makes little sense.

Yes, but investors have cooled to Tesla’s story, they now want to see a fundamentally stronger business… and pulling ahead the high end Model 3 sales is not impressing anyone.

Gotta hand it to Tesla. They have Chutzpah . Asking their parts vendors to take yet another cash and profit hit, apparently as a “noble sacrifice for the team”. I doubt there will be any takers. Tesla has jacked around theirs parts vendors for 9 months with repeated aggressive demands, backed with “firm orders” to ramp up parts production to provide high-volumes of parts, only to then stick it to them and dramatically reduce parts orders due to Tesla’s in-house production bottlenecks. The incurred financial losses due to these delays to Tesla’s main vendor partner – Panasonic – was so large it had to be reported in their annual global financial report. Here is a link to the problems one small parts vendor had back in October 2017: https://www.businessinsider.com/tesla-cut-model-3-parts-order-production-bottleneck-report-2017-10 from the article: “Luxury electric carmaker Tesla plans to slash by 40% its orders for parts for the new Model 3 mass-market sedan from Taiwanese auto component maker Hota Industrial Mfg. from December, according to a media report. Shares of the parts maker dropped nearly 9% after the Economic Daily News reported, citing Hota Chairman Shen Kuo-jung, that Tesla had told them firm orders would be cut to 3,000 sets per… Read more »

The Hota stuff never did make sense. Tesla was in no position to accept either 3000 or 5000 sets per week last fall. A month later Hota said Tesla was back at full speed and they were shipping parts by air freight! Seriously? After shipping 3000/week? Tesla didn’t build 3000 Model 3s the entire calendar year.

DDW – You’re right about what Tesla actually was in a position to do and did, but what they did and what they were telling their vendors (and the public and stockholders) they were ready to do and to ramp up for were two radically different stories. Electrek, Feb. 2017: https://electrek.co/2017/02/27/tesla-model-3-perfect-execution-production-2017/ From the article: ‘CEO Elon Musk said during the conference call last week: “So when we place parts orders with our suppliers, we’ve told them 1000 a week in July, 2000 a week in August, and 4000 a week in September. These are parts orders. Then the parts need to arrive, and they need to be turned into a car and the car needs to be delivered to customers.” Electrek July 2 2017: https://electrek.co/2017/07/03/tesla-model-3-production-ramp-up/ Elon Musk 7/2/17 tweet: @elonmusk “Looks like we can reach 20,000 Model 3 cars per month in Dec” The most likely truth is that Hota actually may have shipped several thousand parts in late summer/early fall 2017 (as may have quite a few other vendors), but they ended up being scrapped because Tesla changed the design. Then Hota had to re-tool to make the new ones, which delayed shipping and Tesla’s panic to get the… Read more »

There is a big difference between lost revenue and actual losses. The slow ramp means revenue growth for their suppliers got delayed; it doesn’t necessarily mean they got into actual financial trouble because of that.

BTW, the fact that Tesla didn’t *complete* more than some 2,500 Model 3 vehicles in 2017 doesn’t mean they didn’t order 3000 part sets — especially for things like the drive units, which they can easily make and store a surplus of at the Gigafactory, to smooth out the unsteady ramping in other parts of the process.

I’m sure they ordered more than 3000 sets total. But we’re talking about 3000-5000 PER WEEK for 20+ weeks.

This was about December numbers, not about 20+ weeks.

I hope next year Tesla will be big enough to be included in the annual supplier working relations study. Maybe this isn’t as bad as it looks. I still expect them to be profitable in at least one quarter, but it might be a lot harder than I initially thought. Apart from the supercharger network expansion, what other variable or optional cost do they have, that they would be able to cut if need be?

No, it’s as bad as it looks. The path to survival in the amazingly competitive automotive game is to constantly be developing new leading-edge products and spending capital and developing stable relationships with innumerable indispensable 3rd party vendors and partners. And financiers and future investors for both debt and equity investing.

Throwing up hand-build production tents, having end-of-qtr “burst production” fire drills, tweeting insults to both investment advisors and rescuers not even related to your business, sticking it to your original faithful reservation holders by opening up orders to anyone with cash for the high-end versions, and burning your long-suffering vendors with order delays then asking for rebates so you can stay financially afloat, is not that path.

They should just sell the super chargers already

The Tesla shorts will make anything sound like a bad thing.

Take a lesson in high volume manufacturing. These sort of negotiations are very common in consumer electronics. Ask Foxconn, Pegatron, etc.

If anything, the contract negotiations are more dire (for the supplier).

At the beginning of production:
Big US Company to Supplier: “We want to buy 10M/year of this product”
Supplier: “OK, 10M/year price just for you is $1.00/unit”

Once the supplier has ramped up output (about 6mo-1year later):
Big US Company to Supplier: “We now demand a 10% cost reduction or we’ll go to your competitor”
Supplier: “OK”
Supplier then reduces cost in whatever way, you can use your imagination here. Then ask yourself who is making the poor workers jump off the building?

This negotiation is going to be tough. Suppliers bled money to meet Elon’s insane schedule and build out capacity for 10K cars a week, only to see 50K for the entire year. If anything, they want to raise their prices, not bleed further.

It might work if a Tesla bankruptcy would kill a supplier, but Tesla is small fry to most auto suppliers.

According to Automotive News, Suppliers have said “NO” in no uncertain terms, since they counter claim that they have been ready for 5000 cars for a long time now, yet until recently, Tesla was not ready, and the suppliers have lost money because of unused capacity.

Glad to hear they told Tesla to pound sand.

“An executive with a major supplier requesting anonymity on Monday confirmed for Automotive News Tesla’s request for concessions. The supplier rejected the request.

“We have been ready for 5,000 cars a week for 12 months and lost a lot of money,” the supplier told Automotive News.”


Who’s surprised that a terse, out-of-context, leaked internal communication (which at a minimum violates an NDA) was misleading? I wasn’t fooled. Smelled like it was off.

They are definitely marketing now, though! Got my very first “Tesla Model III is now available” email from their marketing department.