Opinion: Tesla Sends Wrong Message to Right Stakeholders

Tesla is sending the wrong message to the right stakeholders. The $53 billion electric-car maker has been asking some of its suppliers to cut prices – including offering rebates on payments going back to 2016, the Wall Street Journal reported on Sunday. It would be nuts not to try, but the way it’s being done undermines boss Elon Musk’s credibility.

Musk needs to do all he can to trim expenses. Last month, for example, he pledged to cull the workforce by 9 percent. Tesla is likely to report a second-quarter loss next week of some $600 million, according to consensus estimates collated by Eikon, with the cost of goods sold rising faster than revenue.

So trying to squeeze suppliers makes sense. And Musk can dangle the carrot of throwing much more business their way in the future: he does, after all, intend to double production in short order from the current 5,000 vehicles a week.

Trouble is, the company is pitching the request as a do-or-die moment, saying it is “essential to Tesla’s continued operation,” according to the Wall Street Journal. That will put the smaller providers among its hundreds of suppliers in a quandary. Their own profitability might be precarious enough that both acceding to and declining the plea for help would cause problems. And asking a handful of parts makers for rebates going as far back as 2016 makes Tesla sound desperate.

These entreaties run counter to the narrative Musk has been trying to spin of late. He has asserted that Tesla will make money in the latter half of this year and told investors in May that he specifically does not want to raise more capital. He called analysts’ queries on the matter “boring bonehead questions” and later accused the analysts of representing short sellers. That alone ought to have set alarm bells ringing among Tesla’s stock- and bondholders.

The reality is that Tesla has been burning as much as $1 billion a quarter, has more than $1 billion of convertible bonds due for repayment in the next eight months and has less than $3 billion in cash. In that light, Musk’s appeal to suppliers reads like it comes from a position of weakness. That’s not the right way to get what he needs, from parts makers or from investors.

On Twitter https://twitter.com/AntonyMCurrie

CONTEXT NEWS

– Tesla has asked some of its parts suppliers to refund some of the payments they have received from the electric-car maker, the Wall Street Journal reported on July 22. The newspaper cited a memo sent to a supplier the previous week. The WSJ also spoke to a number of suppliers which had not been contacted about such rebates.

– Elon Musk, Tesla’s chief executive, wrote on Twitter on July 23: “Only costs that actually apply to Q3 & beyond will be counted. It would not be correct to apply historical cost savings to current quarter.”

– Tesla said in a statement it had asked fewer than 10 suppliers to reduce the total cost of long-term projects that started in 2016 and that all other discussions with suppliers dealt with prices in the future.

– Tesla is due to report second-quarter earnings after the stock market closes on Aug. 1.

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(Editing by John Foley and Martin Langfield)

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