Tesla are running out of money and will be bankrupt by early 2019, they're asking suppliers to offer "retroactive price cuts"

[Master Disaster]

Original source is the WSJ however I'm having to resort to WCCF because I refuse to create an account to view news.

 

So this one is pretty bizarre. The WSJ is reporting that Tesla are running out of money and as a result are now emailing suppliers to ask for retroactive price cuts. After this news Tesla stock fell by 4% though it seems to have mostly recovered now.

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Tesla (NASDAQ:TSLA 295.8 -0.02%) has made quite an unusual move – supplier managers at the Palo Alto, CA-based electric car manufacturer have reportedly reached out to some of their large vendors with a bizarre request: The Wall Street Journal has confirmed that Tesla has asked for “retroactive” price cuts from its suppliers.

 

Wall Street reacted quickly, prices plummeted by 4% at market opening this morning.

This is noted as being unusual for the automotive industry where supply deals are normally agreed upon years in advance.

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Tesla employs various supplier managers whose job is to both handle the day to day procurement of materials from vendors, as well as manage longer and more strategic items such as master contracts and pricing agreements that are typically negotiated and signed for multiple years at a time.

 

Automakers are notorious for squeezing the life out of their suppliers, pinching every single penny possible and swiftly switching to an alternate, lower cost bidder if one presents itself. If you are an automaker, the usual way of doing this is going to the negotiating table and dangling the carrot of huge demand. Any automaker will have the purchasing power in the millions of units, a deal few suppliers will pass up.

 

The supplier can weigh the volume versus their margin on products and decide to sign a purchase agreement with said carmaker. These deals are quite frequently locked in for several years and give both parties the chance to forecast and predict how their business will perform. In fact, we’ve reported on some large automaker supplier contracts before..

What's remarkable is the scope of these emails, Tesla are asking for suppliers to backdate price cuts to 2016 which effectively means the suppliers would be handing Tesla rebate cheques.

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What is so odd about the memo the WSJ confirmed is that Tesla is going back and asking for price cuts on historical purchases. Dating all the way back to 2016, no less!

 

Imagine owning a widget business that sold Tesla inventory two years ago and opening an email from a supplier manager at the company asking for cash payments.

 

This basically amounts to Tesla asking for cash rebates from vendors, akin to a handout. The memo even went on to rationalize that the company is seeking profitability and that the rebates were crucial to a cash-strapped Tesla.

An industry veteran has said that in 40 years he's never seen anything like this before

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Dennis Virag is a manufacturing and supply chain consultant with over 40 years in the automotive industry and he said he’s never seen anything like it:

 

    “It’s simply ludicrous and it just shows that Tesla is desperate right now. They’re worried about their profitability but they don’t care about their suppliers’ profitability.”

Apparently at current spending rates Tesla are going to run out of cash by Q1 2019

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This all comes down to the crossroads Tesla finds itself at.

 

On the one hand (good) Model 3 production is finally cresting the magical 5,000 units per week benchmark that was laid out by CEO Elon Musk as a crucial milestone for the company. On the other hand (bad) the company is burning through cash at a rapid clip with expenses showing no sign of slowing down. $230 million worth of convertible bonds become due in November and a possible $920 million in convertibles will become due in March of 2019 if the price of TSLA stock doesn’t reach $359.87.

 

Currently, the automaker is consuming around $1 billion a quarter and finished the first quarter of 2018 with $2.7 billion in cash reserves.

 

Tesla has said it will pare down planned capital expenditures meaning fewer upgrades and purchases to its existing facilities, and recently cut 9% of its workforce.

 

Despite the expense reductions Tesla is predicted to be out of cash by the first quarter of 2019.

 

With all of that knowledge in hand, and also keeping the pressure to drastically ramp up Model 3 production in mind, its not so surprising the company would pull a drastic move like asking suppliers for cash rebates. It seems anything is fair game to a company that seemingly breaks all the rules.

https://wccftech.com/tesla-is-running-low-on-cash-and-is-now-demanding-retroactive-price-cuts-from-suppliers/

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

 

Wow, this is pretty shocking news to me tbh, I thought Tesla were doing well.

[ItsMitch]

Tesla's official statement provided to Financial Times. @Master Disaster

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Negotiation is a standard part of the procurement process, and now that we're in a stronger position with 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 03. 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. 

The stock also dropping is not a surprise given Tesla's recent history with its cash issues and a lot of analysts are suggesting to sell stocks, rather than hold. 

It's just renegotiating as their business expands, nothing huge here. But your title is incredibly misleading. 

[Hip]

I doubt that this is true. All the big motor companies are trying to badmouth Elon Musk and Tesla for the last years. Due to his will to change something he didn't stop when they tried to erase them from the playground and now all the motor companies will need to follow his steps. They just want to get rid of Tesla and stay in the place they are.

[jagdtigger]

Well well, the bubble is about to burst... As predicted, electric cars arent ready for mainstream. Short range, long charging time, relatively short battery lifespan.

[Hip]

3 minutes ago, jagdtigger said:

Well well, the bubble is about to burst... As predicted, electric cars arent ready for mainstream. Short range, long charging time, relatively short battery lifespan.

Well that is not true. There are already great batteries with a huge capacity and small charging time, it depends on where you live. Look at those countries in north europe or china, where electric cars are selling off like crazy. The US market is not that big as people think of.

 

But electric cars are not the best future we could imagine considering all the mining that has to be done for the batteries.

[Master Disaster]

6 minutes ago, SC2Mitch said:

Tesla's official statement provided to Financial Times. @Master Disaster

The stock also dropping is not a surprise given Tesla's recent history with its cash issues and a lot of analysts are suggesting to sell stocks, rather than hold. 

It's just renegotiating as their business expands, nothing huge here. But your title is incredibly misleading. 

My title was based entirely of information contained in the article I posted.

 

And while the WSJ has actual numbers to back their claims up Tesla's statement is your average copy pasta marketing statement.

 

If you don't believe it then that's fine but don't start calling BS without evidence to back your claim up.

[jagdtigger]

2 minutes ago, Hip said:

with a huge capacity and small charging time

Which means quick charge, i love how everyone likes to forget that any form of quick charge is damaging the battery shortening its lifetime....

[2FA]

4 minutes ago, jagdtigger said:

Well well, the bubble is about to burst... As predicted, electric cars arent ready for mainstream. Short range, long charging time, relatively short battery lifespan.

Tesla's issue has zero to do with market size. They can't produce enough cars to actually stay afloat because Elon thought he knew how to build cars better than the traditional car companies. As a result, their production capacity has been very low while they are fixing their initial production line mistakes.

[jeffmeyer5295]

4 minutes ago, jagdtigger said:

Well well, the bubble is about to burst... As predicted, electric cars arent ready for mainstream. Short range, long charging time, relatively short battery lifespan.

I mean all of the teslas currently in production have either a similar range, or better than what my gas car currently has on a full tank in town. So Idk what you're talking about

 

Long charging times are to be considered but idk if you've seen the electric car chargers all over plus the fast chargers from tesla. And my car sits doing nothing a hell of a lot more than it gets driven, no reason to NOT plug it in lol.

 

It saddens me to see people on a TECH forum jump on bashing advancement of a technology. Don't read too much into people saying tesla is having a hard time, they aren't going anywhere anytime in the near future.

[Master Disaster]

1 minute ago, jeffmeyer5295 said:

I mean all of the teslas currently in production have either a similar range, or better than what my gas car currently has on a full tank in town. So Idk what you're talking about

 

Long charging times are to be considered but idk if you've seen the electric car chargers all over plus the fast chargers from tesla. And my car sits doing nothing a hell of a lot more than it gets driven, no reason to NOT plug it in lol.

 

It saddens me to see people on a TECH forum jump on bashing advancement of a technology. Don't read too much into people saying tesla is having a hard time, they aren't going anywhere anytime in the near future.

Nobody is bashing anything, it saddens me that people think news should not be reported because they happen to disagree with the contents.

[jeffmeyer5295]

Just now, Master Disaster said:

Nobody is bashing anything, it saddens me that people think news should not be reported because they happen to disagree with the contents.

You weren't bashing, merely quoting. It's people saying that the cars aren't sufficient and that the tech isn't there. It's more that they aren't ready for a change. Rather annoying.

[jagdtigger]

6 minutes ago, jeffmeyer5295 said:

have either a similar range, or better than what my gas car currently has

In theory only, just like the official gas consumption rates of IC cars, on paper they consume x l/km, in reality that is x+y l/km..... They always testing them in a clean lab environment in best case situations so they can market them as ultra efficient.

6 minutes ago, jeffmeyer5295 said:

It saddens me to see people on a TECH forum jump on bashing advancement of a technology.

Its not bashing, its being realistic based on my studies as a car electrician. Plus my hobby is making/repairing electronic stuff so its not like i dont know anything about this stuff.

Edited July 24, 2018 by jagdtigger

[Froody129]

13 minutes ago, Hip said:

I doubt that this is true. All the big motor companies are trying to badmouth Elon Musk and Tesla for the last years. Due to his will to change something he didn't stop when they tried to erase them from the playground and now all the motor companies will need to follow his steps. They just want to get rid of Tesla and stay in the place they are.

You can't argue with expenses vs cash income. They simply do not have the money for their expenses 

 

I really hope they sort it out or get some form of government bailout or something. Electric cars have to come at some point and the sooner the better 

[jeffmeyer5295]

1 minute ago, jagdtigger said:

In theory only, just like the official gas consumption rates of IC cars, on paper they consume x l/km, in reality that is x+y l/km..... They always testing them in a clean lab environment in best case situations so they can market them as ultra efficient.

Yeah I get that, but that's on both sides like you said. Don't drive like a mad man and obvs because batteries are involved temperature needs to be on your mind, you should be alright most of the time. You can't really take an electric car on a long road trip but tbh if I'm spending 60-100k on a car I don't really want that kind of wear and tear on it regardless of gas/electric when rental cars are so damn cheap.

[D13H4RD]

I don't know if Tesla is actually going bankrupt

 

I've heard it so many times but I haven't actually seen much of it

[laminutederire]

9 minutes ago, jagdtigger said:

In theory only, just like the official gas consumption rates of IC cars, on paper they consume x l/km, in reality that is x+y l/km..... They always testing them in a clean lab environment in best case situations so they can market them as ultra efficient.

Its not bashing, its being realistic based on my studies as a car electrician. Plus my hobby is making/repairing electronic stuff so its not like i dont know anything about this stuff.

Elon musk is a confidence man. As long as people keep having blind faith in him even if nothing he does is either genius nor is it really profitable, his endeavours will succeed somewhat for him.

[jagdtigger]

6 minutes ago, jeffmeyer5295 said:

Yeah I get that, but that's on both sides like you said.

I presumed you compared the actual range of your care to the on paper range of tesla .

 

7 minutes ago, jeffmeyer5295 said:

but tbh if I'm spending 60-100k on a car I don't really want that kind of wear and tear on it regardless of gas/electric when rental cars are so damn cheap.

Actually a long trip is less wear/tear then using it in town(/short distances).

[Master Disaster]

9 minutes ago, jeffmeyer5295 said:

You weren't bashing, merely quoting. It's people saying that the cars aren't sufficient and that the tech isn't there. It's more that they aren't ready for a change. Rather annoying.

I make no secret that I don't like Elon, he's rude and arrogant however looking at things objectively it's also very clear that our reliance on fossil fuels isn't sustainable and electric vehicles are an answer to that issue (ignoring the fact that a large portion of the world's electricity comes from burning coal and oil).

 

I genuinely hope that Musk gets Tesla into shape and turns it around.

 

[DrMacintosh]

They have a market, but they decided to occupy the high end before they occupied the mainstream and have not been able to get the mainstream models to the masses. 

 

Electric cars are ready to replace fossil fuel cars, they just need to be commodity cars like the Model 3. Existing car makers know this and have been pumping a lot of R&D into making affordable electric cars. 

[jeffmeyer5295]

4 minutes ago, jagdtigger said:

I presumed you compared the actual range of your care to the on paper range of tesla .

 

Actually a long trip is less wear/tear then using it in town(/short distances).

Haha yeah I figured, and I'm honestly more talking cosmetic/tires. I think long road trip and think about the tread I'm surrendering, shortening the time till next oil change, and those god damn rock chips. But you're right in town is harder on your car than 60-80mph cruising.

3 minutes ago, Master Disaster said:

I make no secret that I don't like Elon, he's rude and arrogant however looking at things objectively it's also very clear that our reliance on fossil fuels isn't sustainable and electric vehicles are an answer to that issue (ignoring the fact that a large portion of the world's electricity comes from burning coal and oil).

 

I genuinely hope that Musk gets Tesla into shape and turns it around.

 

I totally understand, it's funny because his 'I don't care' attitude I appreciate, it's a nice change from all the PR sensitive BS we see these days. But hopefully the worlds electricity will move away from coal/fossil fuel. Some states in the US are doing pretty good about it. Just depends where you are. A really good amount of power in the western US is from Hydro electric.

[Master Disaster]

15 minutes ago, Froody129 said:

You can't argue with expenses vs cash income. They simply do not have the money for their expenses 

 

I really hope they sort it out or get some form of government bailout or something. Electric cars have to come at some point and the sooner the better 

Not wishing to get too political but do you honestly think Trump will step in to save Tesla over the oil companies?

[Stefan Payne]

36 minutes ago, Master Disaster said:

Original source is the WSJ however I'm having to resort to WCCF because I refuse to create an account to view news.

Good, they don't deserve any clicks after the Article about that Swedish dude named Felix.

 

36 minutes ago, Master Disaster said:

that Tesla are running out of money

What's new!

They weren't profitable (like Twitter) and only ran on investment.

 

Independant Man has made a couple of Videos on Youtube about this stuff.

 

For example this:

 

I think that was the right one about the financial situation of Tesla...

 

In short: It is miserable.

[ARikozuM]

Time for me to buy a Tesla...

 

I wish.

[Master Disaster]

9 minutes ago, DrMacintosh said:

They have a market, but they decided to occupy the high end before they occupied the mainstream and have not been able to get the mainstream models to the masses. 

 

Electric cars are ready to replace fossil fuel cars, they just need to be commodity cars like the Model 3. Existing car makers know this and have been pumping a lot of R&D into making affordable electric cars. 

Yeah, totally agree. Concentrating on the high end first wasn't very smart, they were never going to shift enough supercars to become self sustainable.

 

As you said, now electric has become mainstream other manufacturers have joined the party and taken a huge chunk of Tesla's potential customer base away.

 

Why wait months for a Tesla when you can have the cheaper Nissan, VW or (insert your manufacturer of choice) tomorrow?

[Radium_Angel]

Bye bye tesla, you will not be missed.