Tesla seeking cash from its suppliers is a sign of more trouble

Tesla is asking some suppliers to refund some of what the automaker has already spent in an attempt to become profitable, reports The Wall Street Journal. This move raises questions about the company's cash holdings, following a reported 24 percent cancellation rate for Model 3 orders, despite Elon Musk refuting the claim.

Tesla net loss in millions

Though the car manufacturer has declined to comment on the memo obtained by the WSJ, it detailed that the company has requested suppliers to return a meaningful amount of money on payments since 2016, which would help the company turn a profit. Less than 10 suppliers have been asked for money back and the cost savings will aid Tesla in increasing its production volume.

It is generally normal for companies to demand a reduction in pricing for current and future contracts, but it is abnormal for them to request a refund for previous orders.

Currently Tesla has around $2.7 billion in cash on hand, but as the company burns through as much as $1 billion per quarter, it is struggling to balance its growth with the expense of launching newer vehicles and building more assembly lines.

Tesla quarterly cash and cash flow in millions

However, the company does not seem to be worried about profitability and has repeated that it will become profitable in this quarter or the next one. This is rightly so, because it's somewhat misleading to focus only on quarterly numbers when the company has been in this same scenario ramping up to the production of previous vehicles, and the company can raise money by selling more shares if it comes to it.

Stock of the company is rising continually which signifies that investors still have confidence in the company's long-term abilities and prospects, and as such, Tesla is likely to drive off into the future with a high chance of success.

📸: Pexels 📈: Statistica, YCharts and YCharts.