RETROACTIVE NEGOTIATION. Tesla seems to have a weird understanding of the old adage “You have to spend money to make money.” In order to look like it’s making money, the company is asking for refunds on the money it’s already spent — even though the people paid delivered on their part of the deal.
On Sunday, The Wall Street Journal reported that it had obtained a memo Tesla sent to one of its suppliers last week. In the memo, Tesla requested a refund on a “meaningful amount” of the money it had paid the supplier since 2016. The author of the memo, one of Tesla’s global supply managers, wrote that the money was “essential” to Tesla’s ability to continue operating and asked that the supplier view the refund as an “investment” that would allow Tesla and the supplier to continue to grow their relationship.
Though the memo claimed that all suppliers were receiving such refund requests, at least some contacted by The WSJ knew nothing about it.
HOW BIZARRE. A Tesla spokesperson doesn’t seem to think Tesla’s refund request is all that noteworthy. A Tesla spokesperson told Futurism: “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.”
Many of those outside the company, however, think it’s downright bizarre. “I have never heard of that,” finance expert Ron Harbour told Bloomberg. “Suppliers have been asked for reductions, but going back for them in arrears reeks of desperation.”
It’s also a pretty self-centered move, according to manufacturing consultant Dennis Virag. “It’s simply ludicrous, and it just shows that Tesla is desperate right now,” he told The WSJ. “They’re worried about their profitability, but they don’t care about their suppliers’ profitability.” (A Tesla spokesperson told Futurism that these negotiations will have no effect on the company’s profitability for the third quarter.)
TESLA’S WOES. Tesla’s current financial woes center on its Model 3, with frequent production issues repeatedly pushing back deliveries of the vehicle. The company currently carries more than $10 billion in debt and has been beset by one controversy after another throughout 2018. Just last month, shareholders even held a vote to decide whether or not to let CEO Elon Musk retain his position as chairman (they ultimately decided to let him stay on in that role).
If the plan behind Tesla’s refund request was to increase faith in the company as it continues to navigate the troubled waters of Model 3 production, it appears to be backfiring; Tesla’s stock dropped by 4 percent Monday morning, even though the first reviews of the Model 3 have started rolling out and have been largely positive (including from the WSJ).
On August 1, Musk will update shareholders on Tesla’s Q2 financial results, so he has just about a week to get the bad taste of Tesla’s refund request out of shareholders’ mouths. If he can’t, it’s not hard to imagine his role as chairman could once again be in jeopardy.
READ MORE: Tesla Asks Suppliers for Cash Back to Help Turn a Profit [The Wall Street Journal]
More on Model 3 production: In an Effort to Speed up Production, Tesla Is Assembling Model 3s in a Giant Tent
Editor’s note 7/24/18 at 10:30 AM: This piece, including the headline, has been updated to include comments from a Tesla spokesperson and to accurately reflect the nature of those comments.