Tesla shares slump 5% after electric car company asks suppliers for refund

Firm has been burning through almost $1bn every three months, leading investors to question how strong its cash position really is

Elon Musk’s Tesla said this type of request was not unusual but the firm has repeatedly stated in the past that it doesn’t need more cash (Reuters)

Tesla’s share price tumbled 5 per cent on Monday after reports that the electric car maker had asked some US suppliers to refund payments.

A memo sent by the company to suppliers was leaked to the Wall Street Journal, forcing Tesla to issue an explanation for the tactic which had spooked investors.

Tesla said this type of request was not unusual but the firm has repeatedly stated in the past that it doesn’t need more cash. The latest move has caused shareholders to question how truthful those statements were.

On Monday, the firm said it had asked fewer than 10 companies to talk about costs related to projects dating back to 2016.

“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,” Tesla said in a statement.

Founder Elon Musk also tweeted about the incident. “Only costs that actually apply to Q3 & beyond will be counted,” he said. “It would not be correct to apply historical cost savings to current quarter,” he wrote.

The move caused investors to sell shares in the loss-making company, which has been spending about $1bn (£760m) every quarter and has $2.7bn cash at hand, according to Bloomberg data.

In further bad news for the company, it was revealed on Monday night that one of its top sales executives has resigned. Ganesh Srivats, a vice president responsible for global sales is leaving to become chief executive of the online retailer Moda Operandi.

The news comes as Tesla prepares to announce its third-quarter earnings next Wednesday. In its previous quarter, Tesla produced more than 28,000 of its Model 3 mass-market car, triple the amount it managed three months before but some analysts have questioned whether that was a fluke.

In June, tesla announce plans to slash 9 per cent of its workforce as pressure to achieve profitability increased.

Mr Musk wrote in an internal email that the 9 per cent staff reduction was in part a matter of cutting redundant roles. But he also acknowledged cash-flow issues that have raised eyebrows on Wall Street.

“Given that Tesla has never made an annual profit in the almost 15 years since we have existed, profit is obviously not what motivates us”, Mr Musk wrote. “What drives us is our mission to accelerate the world transition to sustainable, clean energy, but we will never achieve that mission unless we eventually demonstrate that we can be sustainably profitable”.