Tesla has asked some suppliers for cash back to help it become profitable
wsj.com
wsj.com
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...
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".
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.
> But it confirmed it is seeking price reductions from suppliers for projects, some of which date back to 2016, and some of which final acceptance many not yet have occurred.
is quite ambiguous -- was that really a partial refund on past sales of parts for production cars? Or was it arm twisting related to failed or incomplete "projects"?
I don't know the answer, and I see a lot of people in this discussion being pretty enthusiastic about thinking they do know.
Explanation: "give us money or we will fail upon you"
It's not.
"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.
The pedo thing was a stupid mistake stemming from anger that got lit up by accusations by someone criticizing what Elon probably perceived as sincere offer of help, and he says to have later apologized.
https://twitter.com/elonmusk/status/1019471467304513537 https://www.quora.com/Whats-the-full-story-behind-Elon-Musks...
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.
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...
"Several hours after The Wall Street Journal reported on the talks, Woodward issued a news release saying that it “is not in discussions with Boeing over a possible acquisition of Woodward... After the statement, the people familiar with the matter said the companies remained in talks."
The Wall Street Journal has a long history of thorough research and well-respected publications. There's no doubt that the vetting process for industry sources is extensive. Remember when a right wing group tried to approach the Washington Post with a fake story and how quickly they were able to expose it? It's entirely possible for sources to give occasionally incorrect or unreliable information based on changing events, but the notion that the WSJ consistently relies on "questionable sources" is ignorant of how extensive the process is.
Just because it isn't transparent (which is precisely to protect the quality of their sources) it doesn't mean it isn't reliable.
This is a bullshit appeal to authority.
Let's be very clear about the process:
* The WSJ reports the claims of anonymous sources. It bases entire reports off these claims and makes no effort to provide verifiable evidence of what it is reporting.
* When called on the sordid affair the WSJ and its defenders insist the paper is a serious journalist effort.
This happens over and over at major American newspapers to the extreme detriment of the American people. And yet, here we are again in 2018.
Here's an idea: instead of appealing to authority why not provide evidence? Why not make the sources go on record? Or provide verifiable evidence of the source's anonymous claims? Isn't this what journalism actually is?
"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 second source the WSJ found was Tesla itself. Uninformed assertion does not make for a proper, useful Hacker News comment.
Do you really need someone to explain to you why this is a silly idea?
They literally said that they WERE seeking price reductions for past contracts.
Is this really the hill to die on? A story that was confirmed by the direct source that this was regarding.
This is not to say that Musk would definitely do such a thing. However, the employee(s) who talked to the WSJ are risking personal legal liability for talking to a journalist.
Any journalist worth their salt is going to allow sources to go on “deep background” when appropriate.
I write all this as a soon to be Tesla customer. Yes, asking for manufacturer rebates is not completely unheard of, but it’s also the case that this very rarely happens.
If you’re thinking there’s a conspiracy, keep in mind the WSJ’s auto reviewer just published an overwhelmingly positive review of the Model 3 this week, which Musk retweeted.
US libel and defamation law puts newspapers in legal jeopardy if they intentionally publish false information (https://en.wikipedia.org/wiki/New_York_Times_Co._v._Sullivan). News Corp has a couple billion reasons to let the WSJ’s newsroom do a thorough and honest job.
Also, if you're going to create throwaway accounts just to comment you might want to remember which one you're logged into.
However it has a long history of publishing sensationalist articles especially about Tesla. I remember the articles about executives stepping away, NTSB probes, yellow lines, bankruptcy ... The recent article by Dan on how good Model 3 is is the only positive article I remember on WSJ about Tesla.
Do you remember any of them being factually incorrect?
You are implying bias, where I see a troubled company.
Can you name another instance where the WSJ wrote negatively about a company and it turned out to be false? As a subscriber, why the sudden skepticism?
[0] https://www.wsj.com/articles/u-s-spy-satellite-believed-lost...
[1] https://www.wsj.com/articles/probes-point-to-northrop-grumma...
It is possible to be extremely biased against an entity that has real issues, just like a paranoid can have real enemies.
Apple would never have survived if they had not been run so conservatively, which speaks to the efforts of people other than Jobs and Gates.
At the end of 1997 their 10-K says they had around $1.4B dollars in cash, and around $900M in long term debt.
The 2000 10-K shows they had $4 billion in cash and short term investments compared to $300 million in long term debt.
Is Reuters reputable enough to question the sensationalism in WSJ? http://blogs.reuters.com/felix-salmon/2010/02/26/the-sensati...: "In any case, it’s clear from the photograph and the two main stories on the WSJ’s front page that the paper is aggressively becoming both sensationalist and political. That might be a sensible move, from the point of view of selling copies, especially on the newsstand. But it will also inevitably serve to erode the trust that many people, on Wall Street especially, have in the reporting of the WSJ."
So WSJ is beyond reproach and criticism? WSJ has had problems in the past with their reporting. Nobody is beyond reproach, especially a company owned by rupert murdoch.
If you have an issue with the guy's comment, why not point that out instead of attacking him for being "shameful" for criticizing the wsj?
https://apnews.com/d71bf1b8c2304329866441ec4089760f
"It's Not Just The Editorial Page: Study Finds WSJ's Reporting On Climate Change Also Skewed"
https://www.mediamatters.org/blog/2015/08/11/its-not-just-th...
It's worrisome the social media campaign to quash criticism of the corporate media.
The parent comment was edited so of course there's no way you could have known, but it had previously equated the WSJ to being no better than "fake news." I think a fair interpretation of "fake news" is inflammatory information that's intentionally misleading and has no ties to any sort of reality.
In this age of misinformation, I think it's important to support and recognize quality sources of information and education. Comparing the WSJ to a fake news publication is disrespectful and ignorant and I think it's worth calling out.
I didn't realize he said WSJ is fake news. That is a bit hyperbolic but that's his opinion and he's certainly entitled to it.
> In this age of misinformation, I think it's important to support and recognize quality sources of information and education
In the age of misinformation, it is more critical that we hold a light to established news sources. Especially those that people blindly accept on faith.
> Comparing the WSJ to a fake news publication is disrespectful and ignorant and I think it's worth calling out.
So what if it was disrespectful? That's his opinion. Why attack him for it? Should he attack you for blindly accepting the WSJ?
WSJ is just a company. Why are you so offended? There's plenty the WSJ did for people to disrespect it. Obviously there's plenty they did for you to respect it. Whatever happened to respecting each other opinions?
You can disagree with him without calling him ignorant and attacking the guy.
- The supplier provided the memo.
- The memo included that all suppliers were asked.
- Tesla declined to comment on the specific memo, but confirmed that it had asked this of some suppliers.
Tesla confirmed that it was seeking "price reductions." Tesla's statement is not confirmation that they are running to suppliers asking for refunds.
Asking “do you want 95% now or see whether we can pay back 100% in 20 days, when we have to pay you?” is fairly standard practice for companies that are running low on cash.
If all parties involved think there’s a >5% chance they won’t be able to eventually pay back, the rational thing to do is to accept that offer. Also, the first to accept the offer is more likely to get the money.
(But _if_ the end result is bankruptcy, the trustee appointed might order you to pay back that money, so that debtors who have more rights to be repaid can be paid back with it)
"Tesla Inc. TSLA -2.08% has asked some suppliers to refund a portion of what the electric-car company has spent previously, ..."
That is a refund, you can't explain it any other way.
They have a memo, they talked to Tesla who do not appear to challenge their narrative. Plus, it's a business story in the WSJ, not some random blog post.
Either way, I’m highly suspicious of articles like this considering the personal gain some individuals stand to win.
Why do you think only one side is corrupt?
Telsa is on record saying that it's true, so what exactly is fake?
> 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 company called such requests a standard part of procurement negotiations to improve its competitive advantage, especially as it ramps up Model 3 production.
What Tesla confirmed is nothing more than standard business practice—and indeed good business practice. You should always be questioning whether your suppliers are giving you their best possible price.
There's a very clear pattern of headlines about a potential Tesla doomsday that's almost always rooted in rumors or anonymous tips...and guess what...sometimes you look up the analyst and find that they're openly shorting Tesla.
This article is sensationalized. We all now know that this is standard industry practice yet the article strongly implies that without these retroactive discounts, Tesla won't be able to stay afloat. What did we find out since this garbage publication? That the discounts they're asking for aren't as retroactive as the original article claimed, and the consequences are completely baseless.
I'm just pointing out this aggressive pattern of Tesla shorters taking these rumors and running wild with them. I don't need to read every unfounded rumor to comment on it.
If I was more savvy, I would look into today's selloff and see if that analyst Elon made fun of on the earnings call finally dumped his borrowed shares but that's way too much effort to justify my internet comment.
Looks like it worked: https://www.reuters.com/article/us-tesla-stocks/tesla-shares...
My god some of you people are you going to look foolish.
> 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...
[2]:http://business-review.eu/news/elon-musk-set-to-receive-usd-...
That's making the assumption that Musk's direct involvement in operational affair is a positive contribution to improving matters, which is increasingly becoming less probably given his erratic nature.
He's needed as a mascot for the Believers, but apart from that, he should probably reduce his overnight stays in the factory.
This is why the frantic push to improve cash flow.
[1] https://www.forbes.com/sites/chuckjones/2018/03/30/what-the-...
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.
Everyone knows the dates when Tesla's bonds are due. We all know Tesla has lost $300 million / quarter per quarter for the last few years. Etc. etc. etc. Its all public information and there doesn't seem to be any "cooking of the books" going on right now.
In the case of Enron, it looked like a normal company but the executives were lying to the public. A few investors published articles noting that the numbers looked "off", which eventually prompted an investigation. Basically: if people lie, there's usually evidence in the numbers. Some numbers look wrong, certain things don't add up right, etc. etc. I've never heard of Tesla cooking the books.
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.
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.
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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.
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.
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.
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!
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.
Let's be honest that Tesla hasn't revolutionized the car, they have a clone of existing cars but with an electric powertrain.
Remember that initially Apple sold the iPhone for $600 or something. The big revolution was that the initial buyer wasn't the carrier, but the end user, not only for the iOS ecosystem, but for the phone as well.
iPhone devalued the billions of capital investment that Verizon had made when high-end users ran to Cingular to get the iPhone in the face of a slower, less reliable and less available network, and took the best customers.
Tesla is a very different story. They have to balance the elitist cachet with the fact that relatively consumers actually want an electric car, and that they cannot meet demand of those who do.
I’d say there’s a lot of outfits who would be better positioned/more likely than Apple.
Tesla's batteries are made by Panasonic, who also makes them for Toyota
Hard to say how much of that was legit. Maybe Tesla has designs that although Pana makes aren’t available to anyone else. Maybe they’re fairly normal components.
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.
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.
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.
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.
Hybrid power trains are available up and down the product line. Both companies have an electric only vehicles that are real cars... not compliance cars.
They move in steps to get the process and supply chain built, and to maximize their capital investments. They also are giving customers what they want — few consumers want electric.
In words often attributed to Henry Ford “If I had asked people what they wanted, they would have said faster horses.”
And your comment proves my point. Existing manufacturers are more interested in their existing ICE business than in fully electric, and will be until it's too late. Yes they 'have' electric vehicles, in the same way the Microsoft had phones and has a search engine, but it's not where they are focusing their business engergies (compared to Tesla).
Nah,that could never happen....
https://teslamotorsclub.com/tmc/threads/elon-musk-vs-short-s...
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.
That sounds extremely uncomfortable.
It’s spelled: Reddit
Tesla has a lot of assets and a bunch of people who committed cash to pledge that they would hand Tesla more cash, so it is a really profitable buyout target.
A lot of the longs are basically thinking "Where else better would I park my money?" and coming up with "Nowhere."
Yes, its all a short seller conspiracy, not some terribly run 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...