Tesla explains why it asked some suppliers for retroactive discounts

  • Tesla is pressing some of its suppliers to give the company retroactive discounts.
  • In a statement on Monday afternoon, the company suggested this is just a standard part of business negotiations.

Tesla has responded to a report in the Wall Street Journal Sunday that the company asked a supplier last week to return a "meaningful amount of money of its payments since 2016.”

Tesla said that it was negotiating with suppliers in an effort to reach a "more sustainable long-term cost basis," and that it had contacted fewer than 10 suppliers with these requests. The company said that its other discussions with suppliers were focused on price negotiations for future shipments.

In a tweet, Tesla CEO Elon Musk also said, “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 supplier negotiations have called Tesla’s financial position into question. The company lost nearly $2 billion last year and burned about $3.4 billion in cash after capital investments. It had $2.7 billion in cash at the end of the March quarter.

Here's the company's full explanation of why it is asking this of some, but not all, of its suppliers:

“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.”

Shares in Tesla closed down 3.3 percent Monday.

-- Tae Kim contributed to this report.

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