Tesla Inc TSLA traded down more than 4 percent Monday morning on news that management requested partial refunds from suppliers to help the automaker progress toward profitability.
The Wall Street Journal also received confirmation that Tesla is seeking price reductions from fewer than 10 suppliers for uncompleted projects that began in 2016, and CEO Elon Musk tweeted it will only count costs applicable to and beyond the third quarter.
Why It’s Important
In a memo to targeted suppliers, management framed the appeal as an “investment,” an opportunity to ensure Tesla’s continuation and, by extension, its ability to remain a parts buyer.
The requested reduction in project capex would not impact Tesla's ability to achieve third-quarter profitability, a spokesperson told Reuters. The firm is less focused on one-time reductions for this quarter as it is on reaching a "more sustainable long-term cost basis."
However, the cost-cutting measures in general are seen to validate bearish concerns about Tesla’s cash burn and need to raise capital, particularly after the firm laid off thousands as a means of preservation.
What’s Next
Based on the WSJ report, suppliers appear reluctant to compromise their own profitability to buoy Tesla.
If the latest fundraising strategy fails, Tesla may find itself turning to the market for capital despite its assurance that it wouldn't pursue a raise for the rest of 2018. Such a failed promise may shake investor confidence in the automaker’s story.
At time of publication, Tesla shares were trading down 3.4 percent around $303.
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