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.”
Only costs that actually apply to Q3 & beyond will be counted. It would not be correct to apply historical cost savings to current quarter.
— Elon Musk (@elonmusk) July 23, 2018
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