Tesla wants refunds from suppliers to hit profitability

According to a report by the Wall Street Journal, Tesla has asked some of its suppliers to refund some of the money it had spent with them in the past in increase its profitability and improve its liquidity.

In a memo issued to suppliers, Tesla said those who offered the cash back would be investing in the company’s long-term growth. Company CEO Elon Musk stated on his official Twitter account that any refunds from suppliers would only involve those from Q3 and beyond would be counted. “It would not be correct to apply historical cost savings to current quarter,” Musk tweeted.

The company also issued a statement saying it is “focused on reaching a more sustainable long term cost basis, not just finding one-time reductions for this quarter.” It continues by stating, “we asked fewer than 10 suppliers for a reduction in total capex (capital expenditure) spending 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.”

Such a move is another step in strengthening the company’s financial position, which appears to be shaky following the announcement of the company’s Q1 2018 financial results in May. Since then, the company’s initiatives include implementing cost-cutting measures and attracting more investors.

While it attempts to sort its books out, the company will also have to focus on increasing production levels of the Model 3, building a new global plant in China and introducing a slew of new models (Roadster, Semi, Model Y and even a pick-up truck).

News of Tesla seeking refunds from its suppliers didn’t resonate well in the stock market, as the company’s shares fell by more than 3%. On August 1, the company will reveal its Q2 2018 financial results, where we will see what improvements have been achieved from April till June.

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