
Tesla has asked some suppliers for cash back to help it become profitable - Puer
https://www.wsj.com/articles/tesla-asks-suppliers-for-cash-back-to-help-turn-a-profit-1532301091
======
a-dub
American automakers have been financially whiffly-waffly for as long as I've
been alive. It wouldn't surprise me one bit if this is industry standard for
that industry. It also would be pretty smart to play that game given the bad
press if it's possible by past precedent regardless of financial condition.

It's also quite lucrative to publish these sorts of things about an industry
darling with whiffs of smoke coming from a part of the world that gave us
Theranos.

So it could be good business on the part of Tesla. Or good business on the
part of WSJ.

Tesla could also be fucked. We shall see...

~~~
rjdagost
I used to work in the automotive industry. It is common to push suppliers for
price reductions on existing and future agreements. But I have never heard of
partial refunds on past sales. This is not a smart game of chicken to play. If
your suppliers don't think you are able to meet your obligations, they will
rapidly cut you off from all credit (if not stop doing business with you all
together). And if suppliers require upfront cash for parts deliveries then
Tesla is in big trouble due to their high negative cashflow.

Also, a move like this could trigger additional credit downgrades.
Institutional investors (the main holders of Tesla stock) are much more likely
to dump the stock if ratings agencies further downgrade Tesla's
creditworthiness. I'd be surprised if Tesla were bluffing here- I think this
is either pure desperation or "fake news".

~~~
Animats
_It is common to push suppliers for price reductions on existing and future
agreements. But I have never heard of partial refunds on past sales._

Yes. The terms under which "New GM" took over the supplier contracts of "Old
GM" come close. But that was a bankruptcy; the stockholders lost everything
and the management lost their jobs.

Tesla doesn't buy enough to bully many suppliers like that. If you sell Tesla
bolts or tires or coils of aluminum, Tesla is a minor part of your business.
Only if your business is making some custom part for Tesla can this work.
Tesla does much of their custom stuff in-house, so there probably aren't many
suppliers whose main customer is Tesla.

------
anilshanbhag
This is just speculation. The story constantly says 'suppliers' when it is
just one person at one supplier who has corroborated the story.

"Some suppliers contacted about the request said they were unaware of such a
demand."

=> They didn't find any other suppliers who had received the said memo.

~~~
Puer
"Tesla declined to comment on the specific memo. But it confirmed it is
seeking price reductions from suppliers for projects, some of which date back
to 2016, and some of which haven’t been completed."

The Wall Street Journal is one of the most reputable sources for business
journalism. Claiming that they would publish this article without proper
vetting is ridiculous and equating it to "fake news" is shameful.

~~~
seldon999
A few months ago the WSJ reported that the aerospace supplier Woodward was in
talks to be acquired by Boeing. [1]

After the market closed, Woodward came out and categorically denied the WSJ's
report, saying that it was not in talks. Period.

Its not necessarily nefarious, but the WSJ does in fact publish stories that
rely on questionable sources. It's absolutely not out of the question that
that could have happened here as well.

Note that since [1] was published, Woodward has not been acquired by Boeing,
and its stock took a dive after the WSJ's poorly sourced story caused the
stock to shoot up ~10% when it published. A lot of people that bought it on
the WSJ's bad report lost a lot of money.

1\. [https://www.wsj.com/articles/boeing-in-talks-to-buy-
aerospac...](https://www.wsj.com/articles/boeing-in-talks-to-buy-aerospace-
parts-maker-woodward-1518104707)

~~~
Animats
About half of all big deals that are announced in the press don't close. They
collapse for lots of reasons.

~~~
seldonnn
This isn’t about a proposed deal not closing. This is about a proposed deal
being reported as such, when in fact there had not ever been deal talks in the
first place.

~~~
Puer
"Tesla declined to comment on the specific memo. _But it confirmed_ it is
seeking price reductions from suppliers for projects, some of which date back
to 2016, and some of which haven’t been completed."

Also, if you're going to create throwaway accounts just to comment you might
want to remember which one you're logged into.

------
mankash666
Assuming WSJ reporting is accurate, Musk's singular focus needs to be on
Tesla's profitability. All his other stunts, from the boring company to Thai
submarines need to take a hiatus until he gets Tesla out of this trouble

~~~
fouc
I thought this provided some interesting background
[https://teslamotorsclub.com/tmc/threads/elon-musk-vs-
short-s...](https://teslamotorsclub.com/tmc/threads/elon-musk-vs-short-
sellers.118431/)

~~~
slivym
That is worth taking with a massive pinch of salt. A lot of the 'evidence' and
points made in that post are like reading tea leaves. To give one example:

> In March 2018, short interest spiked to a new all time high, to its current
> levels. This coincided with the Moody's downgrade, and sudden questions over
> liquidity. Just as Tesla's most important product is about to ramp.

Reality check: Tesla's target for mass production was December 2017. In March
the deadline had been completely missed. In Q4 2017 they pushed the target to
Q1 2018 and in march they pushed the target further back to Q2 2018.[1] They
were producing around 1000 cars per week at that point. In March news was also
coming in that Musk had just been granted an outrageous set of stock options
that were going to be conditional on Market Cap - not production targets or
profitability.[2] Not to mention the fact that at that point the plan for
hitting the target had turned into a plan to build a tent city for car
production, which doesn't seem likely to fill investors with confidence. You
can say NOW that production was about to ramp up - but did this author buy in
in March because he knew better than everyone else that production was about
to successfully ramp?

So that's the context of the actual production capabilities of Tesla, and then
the other context you need is that Tesla is burning through cash and has a
load of debt (not helped by the huge debt that SolarCity bought in). This is a
material risk, and in March Moody's downgraded Tesla - which increases the
cost of their borrowing, which again is perfectly expected to reduce the value
of the stock. Especially when you consider that they have over 1B in debt
maturing in the next 12 months and that needs to be rolled over at a time it
looked possible they STILL wouldn't be producing 5,000 cars a week.

This is one extremely charitable narrative about a set of facts that without
the charged topic probably indicate a company with serious, but not
insurmountable, problems.

[1]:[https://www.barrons.com/articles/when-will-tesla-hit-its-
elu...](https://www.barrons.com/articles/when-will-tesla-hit-its-elusive-
model-3-production-target-1528409384)

[2]:[http://business-review.eu/news/elon-musk-set-to-receive-
usd-...](http://business-review.eu/news/elon-musk-set-to-receive-usd-2-6-bn-
in-shares-from-tesla-if-milestones-are-met-162528)

------
canada_dry
Yikes, desperate times require desperate measures I guess!

Considering that a) these suppliers already gave Tesla a deal based on
promised volume, and b) these suppliers also have stock holders to account
to... this seems like a Hail Mary pass.

Perhaps an indication that Tesla is in much worse shape than Elon would like
us believe.

~~~
KaoruAoiShiho
If people have been following Tesla financials it's been clear that they're
running out of money. Normally it's ok, everyone knows that Tesla is losing
money and is not yet profitable. In 2018 running a money losing business for
decades is totally expected and excusable if it's something as cool and fancy
as electric cars. Tesla just needs to raise money from investors or the debt
markets and there are plenty of people willing to toss more in the pit.
However Elon kind of boxed himself in with some egoistical bs about promising
not to raise any more money this year??? But why? Just freaking raise more
money holy shit. As it is he's actually doing harm to the company and seeming
actually desperate.

~~~
rjdagost
There's a lot of speculation as to why Elon claimed to not want or need
additional capital raises. Some people claim there is an ongoing, undisclosed
SEC investigation which prohibits them from issuing more shares. Others claim
that parts suppliers will cut off credit unless they can show a sustained
profit. Others claim that Moody's and S&P will cut Tesla's credit rating to
"effectively in default" if they can't show a sustained profit this year,
which will trigger institutional investors to dump their holdings. I have a
feeling we will find out the real reason before too long.

~~~
nradov
Credit rating agencies don't operate that way. They won't label a company as
"effectively in default" unless a default is imminent and unavoidable. Credit
ratings are based on ability to pay, not profitability. Tesla is in a
precarious situation but far from actual default.

~~~
skgoa
Tesla is within 9 months of default, if things don't change dramatically.
That's because in 9 month $900 million worth of bonds will have matured, which
Tesla seems unable to refinance unless they raise capital, which Tesla seems
unable to do for an unknown reason.

Ratings agencies have highlighted this for a while now and have said
explicitely that Tesla will have to show sustained, profitable production or
their rating will be reduced to "practically junk". The situation is not quite
at that stage yet, but it's not as far off as you make it seem, either.

~~~
nradov
Sure that's all correct and I expect Tesla will have to raise more funds to
survive. But from a credit rating standpoint there's a huge difference between
"effectively in default" and "practically junk". Many companies issue junk
bonds and are able to continue operating.

~~~
dragontamer
Tesla is currently in Junk status (that is, below BBB- rating). But within
Junk status, there are degrees. Tesla's current rating is Caa1, well below
Baa3, according to a rating in March 2018 earlier this year.

FYI: That puts Tesla's bonds as 6-steps BELOW "junk" status. Tesla is well
into junk status and is considered a highly speculative bond.

If Tesla's financials continue to degenerate (and remember: this is a company
that was losing 300-million per quarter BEFORE the Model3 ramp-up. Who knows
how much "the tent" and all of those extra workers cost??), then Moody's will
be forced to lower Tesla's bond rating even lower.

"Default Imminent" is a rating of Caa3. Tesla is literally 2-steps away from
"Default imminent". Below Caa3 are the ratings of Ca, and C, when the company
is finally entering default officially.

\-----------

Remember that Tesla has bonds coming due at the end of 2018 and the beginning
of 2019. Tesla needs to pay off those bonds somehow, and so far... it seems
unlikely that they can pay it off using profits.

Maybe Tesla will reach profitability in the next few months, but their runway
is definitely running out.

~~~
skgoa
And Tesla's 2025 bonds trade at 88 cents on the dollar right now.

------
Puer
Outline link:

[https://outline.com/U6veCd](https://outline.com/U6veCd)

------
sandworm101
>> Tesla requested the supplier return what it calls a meaningful amount of
money of its payments since 2016, according to the memo.

Bullying plain and simple. This is not how you operate a successful company.
Two things will happen: 1) Suppliers will send the money and in turn will keep
prices higher in expectation that similar demands will be made in the future.
Or 2) Suppliers will eat the losses, leaning out their own operations and
risking interruptions. So by doing this Tesla will face either higher prices
for future contracts, or increased unpredictability in their supply chain.

The worst thing any company can do is get a reputation for unpredictable
payment. It puts you are the bottom of everyone's friends list. Your orders
will always be less important than everyone else's.

------
bhouston
If suppliers are going to finance the company should Tesla issue shares to
them?

It is this a supplier financing loan?

Or just give back money so I can be your customer in the future?

The only exception may be on electronics whose prices continually decrease,
like screens, CPUs and other such things.

Also these suppliers likely already has horrible payment terms like net 180 or
at least that is what I saw in other similar vehicle manufacturers.

~~~
bluedino
Supposedly the place I work at did the same thing about 15 years ago. They
were close to closing the doors and started calling for suppliers and begging
for discounts etc. It worked, they’re still in business today.

------
rwc
"WSJ is not trustworthy on Tesla" comments make me think there would be quite
a few people saying "WSJ is not trustworthy on Theranos" a few years ago..

------
AdamM12
Read "PayPal Wars" loved it. Can't wait to read the 3-4+ books to come out
from SpaceX & Tesla as time passes.

------
londons_explore
I don't really see how this works...

Can I demand cash back from Amazon for all the stuff I bought last year? A 20%
retroactive discount should do. If they don't give me that discount, I'm off
to buy stuff from eBay!

~~~
EpicEng
Well, perhaps if your purchases constituted some large majority of Amazon's
sales. From what I read I doesn't seem like Tesla has that sort of leverage on
their suppliers, but what the hell do I know.

------
systemBuilder
What if Tesla made a downpayment on parts at supply-rate XYZ (250,000 cars per
year), and it turns out they will only do 200,000 cars this year? Wouldn't you
ask for cash back on that downpayment?

~~~
jonknee
Well that 100% depends on the contract. My hunch is if it was stated like that
in the contract than they wouldn't be "asking" and this wouldn't be a news
story. I don't know what kind of supplier would agree to that though, it would
be a really sweet deal to reserve parts and then not have to actually you know
buy them.

------
tomhoward
Non-paywall link:

[http://archive.is/sYGyZ](http://archive.is/sYGyZ)

~~~
mseidl
You're doing the lord's work.

------
jlj
In some industries, charegebacks are common when suppliers don't meet the
terms of the contract. No PO number on the shipping label, late arrival,
quality, or other T&C's.

If that is not the case and this is strictly a financing agreement, I am not a
CPA but skeptical that the cash back could be accounted as contra expense
which would increase profit. It is definitely not revenue. It would probably
end up on the balance sheet as an accounts payable like changing the payment
terms would do. That helps cash flow but has no direct effect on profit.

Article is paywalled and couldn't read it all, but curious what any finance
and accounting experts could add. The headline doesn't quite sound right.

------
tzm
Perhaps it's a simple question of obtaining credit for any supplier quality
issues, which is common practice in automotive. No need for the author (or
anyone here) to posture this as an act of desperation.

------
solarkraft
WSJ is not trustworthy on Tesla.

------
fullshark
Bankruptcy + acquisition by Apple forthcoming.

~~~
bhouston
I think he would like to avoid the bakruptcy first aspect but getting into
apple will help. I could see it Happening, especially after the beats
acquition.

~~~
jshaqaw
A 1B Beats acquisition can be excused as a vanity play for Apple plus when
they did that deal the company was still closer to “can do no wrong” status. A
tens of billions investment into a money losing capex intensive industry would
be a lot harder for Apple to sell to its shareholders.

~~~
Spooky23
Tesla seems like a company that is poorly operated. Apple is arguably the best
manufacturer on the planet.

~~~
MBCook
I’m not saying this is likely, but imagine white Toyota or Honda could do with
Tesla’s battery/platform technology.

I’d say there’s a lot of outfits who would be better positioned/more likely
than Apple.

~~~
imron
> but imagine white Toyota or Honda could do with Tesla’s battery/platform
> technology.

Sit on it and do nothing, to preserve their ICE business?

The rest of the auto industry is being dragged very reluctantly into the EV
market.

~~~
dingaling
Both Toyota and Honda ventured into hybrids and battery technology long before
Tesla was founded. Nearly a decade before, if you trace back to the Prius
program initiation.

Tesla was formed to design hybrids to compete against the Prius and Insight
and only later pivoted into pure EV. They were actually the market-follower at
inception, not the innovator.

I don't see how those Japanese companies can be accused of sitting on
technology.

~~~
imron
> Both Toyota and Honda ventured into hybrids and battery technology long
> before Tesla was founded.

Exactly! So how come they are so far behind. If they had been serious about
it, they could be far ahead of where Tesla is now, instead, the opposite is
true.

> I don't see how those Japanese companies can be accused of sitting on
> technology

The 'sitting on it' was in reference to the post I was replied to which was
talking about a hypothetical situation where these companies had Tesla's
technology, and the thing is, they could have had it if they were serious
about it.

They're not sitting on it in the nefarious sense, they're just not
particularly interested in developing EV compared to the ICE side of their
business.

~~~
EADGBE
> they're just not particularly interested in developing EV compared to the
> ICE side of their business.

The ICE business has a lot of cronies that come with it too. I'm sure they're
getting kickback for going full-bore with ICE development: you've got the oil
dependency, the gas dependency, and the ICE maintenance and component
dependency (the more techy and hybrid drivetrains are just a promise for high
maintenance costs once things start to break).

Throw in the fact that it's super cheap to develop a more efficient gas engine
compared to an electric motor/battery combo; and it's pretty easy to see why
none of these companies push for it like an outsider without these vested
interests.

In fact, I could see these outside interests being all for an EV with
minuscule range (35-50 miles or whatever the big manufacturers tote now)
because they know all and well that the majority of US drivers can't hang with
that as a daily driver.

------
ww520
Are the shorts gearing up for a push to depress the stock price?

~~~
compcoffee
Are the longs gearing up for a push to increase the stock price?

Nah,that could never happen....

~~~
ww520
Someone should do a ML on these news things to correlate the stock price
movement with these news.

------
arthurofbabylon
Smart companies focus on the alignment of interests. This strikes me as a very
smart move - it creates teamwork among players.

~~~
TAForObvReasons
It's a great short-term move for Tesla to "ask for a refund for past work",
but a horrible long-term strategy

~~~
PakG1
Which is why you only pull this card when you're desperate. Hopefully, you
never have to do it again.

------
bla2
Remember the link recently that predicted Tesla shorts are about to unleash
lots of negative press to make money? That's part of that.

Edit:
[https://news.ycombinator.com/item?id=17521946](https://news.ycombinator.com/item?id=17521946)

~~~
ebikelaw
These short conspiracy theories are hilarious. All the available evidence
points to a conspiracy by the sell side. They’re the ones with entire websites
devoted to worshipping Tesla and Musk where words of skepticism are grounds
for banishment.

It all reminds me of my pal Adam Feuerstein who is a pharma analyst. There are
_hoards_ of people online who accuse him of being a puppet of the short side
but all he does is publish true facts about drug trials. Just telling the
truth is more than enough to be labeled a short shill by the people who are
themselves very invested in the pump and dump.

~~~
SlowRobotAhead
>They’re the ones with entire websites devoted to worshipping Tesla and Musk
where words of skepticism are grounds for banishment.

It’s spelled: Reddit

------
hndamien
Maybe its a WSJ make good for shorts.

~~~
compcoffee
I'm absolutely loving the fact that Musk's short whining has made its way to
hacker News. Hilarious.

Yes, its all a short seller conspiracy, not some terribly run company.

~~~
hndamien
It was a joke.

------
alexandercrohde
Why the f--- is this top of front page (second article today too)? It's a
trivial signal about a freaking car company.

I understand that a lot of people root for Musk, as a symbol of science
defeating entrenched power. But it feels like there's some unexplained payload
of negativity too, and I'd be curious where that's coming from...

