Tesla asking some suppliers for refunds
Less than a month after saying it reached its goal of producing 5,000 Model 3 cars in a week, Tesla is reportedly asking some of its suppliers for refunds on some of the parts it uses to build its electric cars.
According to the Wall Street Journal, Tesla has gone to some of its suppliers and requested refunds on portions of what the company already paid for parts dating back to 2016, in some cases. The Journal cited a memo that it reviewed, and which it said was sent by Tesla to one of its suppliers, as evidence of the company’s refund requests. Tesla is said to have asked the supplier to refund a significant portion of what it originally paid the supplier two years ago.
The request for refunds is said to be one of Tesla's methods of helping it turn a profit and maintain its operational levels. According to the Journal, automakers asking for price cuts on supplier contracts going forward is not uncommon, as manufacturers will take such measures to get savings on supplies and help their own profit margins. However, seeking refunds for supplier work that has already been completed is uncommon in the industry.
“Negotiation is a standard part of the procurement process,” said a Tesla spokesperson, in a statement given to this news organization. “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.”
The Tesla spokesperson added that the company “asked fewer than 10 suppliers” to reduce the prices of their projects “for longterm projects that began in 2016 but are still not complete.” Tesla said the remainder of its discussions with suppliers “are entirely focused on future parts price and design or process changes that will help us lower fundamental costs.”
For automakers, getting lower prices and payment terms is central to their own profit goals; the less they pay to build a car can result in higher earnings when customers come in to negotiate a deal.
Ben Kallo, an analyst with Baird & Co., said Monday that the reports of Tesla negotiating more-favorable terms with suppliers indicate that its production levels are improving instead of falling short of expectations.
“It is unlikely Tesla would be asking for concessions from a position of weakness, and (I) think the report could indicate Tesla production is ramping (up),” Kallo said, in a research note. “As (production) volumes ramp significantly, we think Tesla will have the ability to renegotiate supply agreements and improve profitability.”
Tesla, however, is not known for giving any wiggle room on the sticker price of its cars. Instead, the company, as a young automaker, is pouring millions of dollars into the expense of launching cars such as the Model 3. Tesla's cars typically cost between $57,000 and $100,000 to start.
Tesla has also been taking steps to cut its overall costs, including the June announcement that it will shed 9 percent of its workforce, or the equivalent of about 3,800 jobs.