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Tesla reportedly asks suppliers for cash back to cover Model 3 costs

The automaker is apparently asking for the cash to help it maintain profitability.

Difficulties in increasing production of the Model 3 apparently have Tesla asking for money back from suppliers.
Steven Ewing/Roadshow

Tesla is taking the somewhat unusual step of asking some automotive suppliers to return cash the company has already spent with them. According to a new report from The Wall Street Journal, Tesla is asking for "a meaningful amount of money of its payments since 2016."

However, The Wall Street Journal said the memo described the refund request as "essential" to Tesla's survival and critical for a continuing relationship between the automaker and supplier. Tesla has said that sales of the Model 3 are key to it becoming profitable and continuing to grow.

A Tesla spokesperson told Roadshow that contacting suppliers about pricing updates is "the right thing to do." In an emailed statement, the 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."

Tesla is currently working hard to ramp-up production of its more affordable Model 3 electric car and reportedly characterized the requested price refunds as key to the company remaining profitable during the Model 3 launch.

In the statement, Tesla's spokesperson clarified to Roadshow that, "We asked fewer than 10 suppliers for a reduction in total capex [capital expenditure] 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."

There have been conflicting signs about Tesla's financial health. On one hand, the automaker built a record number of Model 3 sedans in the second quarter, beating its internal target of building 5,000 of the cars per week. At that time, Tesla promised "positive GAAP net income and cash flow in Q3 and Q4, despite negative pressures." And at the end of the first quarter, Tesla had said it had a cash balance of $2.7 billion.

However, earlier this summer the automaker implemented layoffs of 9 percent of its staff as it works toward profitability -- at which time company CEO Elon Musk noted that Tesla has never made a profit in its 15-year history. In other words, it seems the electric automaker still has a long way to go before it's out of the woods financially.