Tesla has been hit by another setback as news broke that the electric car manufacturer sent a memo to suppliers asking for cash back to help it reach profitability. James Walker looks at the challenges faced by Tesla in 2018
It has been a rough ride for Tesla in 2018 and the electric car manufacturer hit another bump in the road today when news broke that it had asked some suppliers for cash back.
Tesla reportedly asked to return previous payments to help the company reach its profitability target, according to a memo seen by the Wall Street Journal.
At the time of writing, the share price of Tesla had fallen by just under 5% since news of the memo broke.
Manufacturing consultant Dennis Virag said: “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.”
It is reported that the car manufacturer spearheaded by chief executive Elon Musk wanted refunds on projects that began as early as 2016.
Responding to the story on social media, Musk tweeted: “Only costs that actually apply to Q3 & beyond will be counted. It would not be correct to apply historical cost savings to current quarter.”
The call for cash back has increased worries about the electric car manufacturer’s cash flow.
Tesla has been spending about $7,430 (£5,672) every minute and $1bn (£760m) per quarter – cutting its staff by 9% in an attempt to dent these sums.
In unaudited accounts included in a letter to investors, the company revealed that its cash flow fell from $3.4bn (£2.6bn) to $2.7bn (£2.1bn) in the first quarter of this year.
A Tesla spokesperson said: “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 Q3.
“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.”
Tesla in 2018: Record revenues, record losses
Tesla reported record revenues of $3.4bn (£2.6bn) in the first quarter of this year, but also reported record losses of $784.6m.
Investors balked at adjusted losses per share sitting at around $3.35 or $4.19 before adjustment.
If the eco-friendly car maker is going to avoid paying $230m on a convertible bond in November, its conversion share price will need to reach $560.64.
Tesla could also have to pay out $920m on a convertible note should the price not hit $359.87 by next March, according to the Wall Street Journal.
At the time of writing, the share price of Tesla stands at a little over $300.
Tesla will reveal its financial results from the second quarter of this year – during which the company was trying to reach its 5,000-unit Model 3 target – via webcast on 1 August.
Tesla in 2018: JP Morgan forecasts colossal share price plunge
JP Morgan’s automotive research analyst Ryan Brinkman made a bold prediction in December last year.
The car industry expert forecast that the stock price of Tesla would plunge 44% to $180 a share by the end of 2018.
He backed his prediction again in April – saying the car manufacturer’s share price would fall as a result of competition and an overvaluation.
Writing to investors last Friday in a note seen by CNBC, Mr Brinkman said: “We have highlighted more concerns regarding increased competition, including from automakers looking to use the sale of battery electric vehicles to subsidise their more lucrative internal combustion engine portfolio vehicles from a legal, regulatory, and compliance perspective, rather than trying to generate profit on the sale of these battery electric vehicles in and of themselves.”
Mr Brinkman also said the leading bank was concerned about the cash flow of Tesla, as well as its margin due to “expenses employed to ramp production in a seemingly inefficient manner”.
Tesla in 2018: Man dies in Model X crash
Apple engineer Walter Huang died in March after his Tesla Model X crashed into a roadside barrier while it was in the semi-autonomous autopilot mode.
While the family of Mr Huang are looking to sue Tesla over the crash, the manufacturer released a statement blaming him for the accident.
Tesla said: “According to the family, Mr Huang was well aware that autopilot was not perfect and, specifically, he told them it was not reliable in that exact location, yet he nonetheless engaged autopilot at that location.
“The crash happened on a clear day with several hundred feet of visibility ahead, which means that the only way for this accident to have occurred is if Mr Huang was not paying attention to the road, despite the car providing multiple warnings to do so.”
The statement also pointed to research that found that driving in autopilot resulted in 40% fewer crashes.
Tesla in 2018: Electric car manufacturer (finally) meets production target
Although Tesla has not had much cause to celebrate its finances and analyst predictions this year, it has had a glimmer of good news on the manufacturing front.
The manufacturer finally met its production target for the Tesla Model 3 – churning out 5,000 units of the electric car per week.
Musk and his team missed the 5,000-unit target twice before reaching its goal earlier this month.
Tesla is reportedly aiming to up its production of the electric sedan to 10,000 units a week next year.
Tesla in 2018: Elon Musk’s tweets
Tesla supremo Elon Musk has caught a lot of flak for his output on Twitter this year.
Earlier this month, Musk falsely labelled a British diver who took put in rescuing boys from a flooded cave in Thailand a “pedo” – only to then delete the tweet and apologise for making the remark.
On April Fools’ Day, he jokingly tweeted that Tesla had gone bankrupt after failing to raise enough from Easter egg sales – much to the irritation of some investors.
Musk has also been accused of indirectly encouraging his sizable Twitter following to pile-on critics of him and Tesla.
Picture: Picture by Dan Taylor / Heisenberg Media