Published: Tue, July 24, 2018
Finance | By Cynthia Curry

Tesla shares drop on report that it asked suppliers for refunds

Tesla shares drop on report that it asked suppliers for refunds

When asked by WSJ, Tesla denied the memo, however confirmed it is seeking price reductions from suppliers for projects, some of which date back to 2016, and some of which haven't been completed.

The Wall Street Journal had reported on Sunday that Tesla had turned to some suppliers for a refund of previously made payments in a bid to turn a profit, citing a memo sent by a Tesla global supply manager.

Tesa CEO, Elon Musk, is doing everything he can to achieve profitability by the second half of the year.

Tesla already cut its workforce by 9% in June, and Musk reportedly promised to slow spending.

The memo was reportedly sent by a global supply manager, and notes the request is essential to Tesla's continued operation, describing it as an investment in the auto company to continue the long-term growth between both players.

Tesla has been burning cash at a rate of about $1 billion a quarter and finished the first quarter with $2.7 billion in cash on hand.

When a company asks suppliers to retroactively give money back, it's a sign that something has gone wrong.

Of course, forecasting that far out has its challenges, and what the company will even look like in 2027 " is still highly uncertain", given new vehicle introductions.

The company has asked for an undisclosed rebate on money it has spent on suppliers since 2016.

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Elon Musk, Tesla's chief executive, wrote on Twitter on July 23: "Only costs that actually apply to Q3 & beyond will be counted".

"This is troubling for us to hear", said Morningstar analyst David Whiston in a note to clients.

Tesla has said the company will be profitable in the third and fourth quarters of the year.

Efraim Levy, a senior equity analyst for CFRA, said he found Tesla's request unusual.

As pressure mounted to ramp up Model 3 production, Musk set up a tent outside Tesla's plant in Fremont, California.

Tesla may have finally hit its production target of the Model 3, but the company is not yet out of the woods.

All of that has to happen while Tesla carries $10.5 billion in debt.

Shares in the company were last down 3.4 percent to $303.22.

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