It's not unusual for manufacturers to seek concessions on future orders. It is extremely strange, at a minimum, for manufacturers to seek Cash Back On Prior Orders to Help Turn a Profit.

Tesla is asking its suppliers for cash back to help it become profitable, according to a memo reviewed by The Wall Street Journal that was sent to a supplier last week. Tesla requested the supplier return what it calls a meaningful amount of money of its payments since 2016, according to the memo.

The surprising requests raise further questions about Tesla’s cash position, which has dwindled after it struggled to boost production of its first car designed for mainstream buyers, the Model 3.

Act of Desperation

Dennis Virag, a manufacturing consultant who has worked in the automotive industry for 40 years, said a solicitation like Tesla’s could put suppliers in financial peril and jeopardize its future supply of car parts.

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

Major Oops In the Pipeline

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. Shares closed Friday at $313.58, and are down about 4.5% over the past 12 months.

As part of Tesla’s bid to become profitable, Mr. Musk cut Tesla’s workforce by 9% in June and promised to slow other spending as well. He’s become focused intently on becoming cash-flow positive, a person familiar with his thinking said.

RECOMMENDED ARTICLES

Current Burn Rate

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. Tesla pledged to pare back planned capital expenditures this year to less than $3 billion from $3.4 billion last year. Its loss attributable to common shareholders in the first quarter was $710 million, the fifth consecutive quarter of record losses.

Tesla's Free Cash Flow

Image placeholder title

Date With Lady B

I have no position in this company but it is increasingly difficult to see how Tesla survives. As with Netflix, if the corporate bond market turns before Tesla can get cash flow profitable, Elon Musk has a date with Lady B: Bankruptcy.

For Netflix's cash flow predicament, please see Can Netflix Survive?

Mike "Mish" Shedlock