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Tesla is learning the wrong lesson from ‘Detroit Three’ automakers

Jolly Sunshine Limited | Updated: Jul 24, 2018

Taking a lesson from Detroit, automotive manufacturer Tesla (Palo Alto, CA) is now asking its suppliers for rebates. This is not something new for the “Detroit Three,” which have been twisting their suppliers’ collective arms for cash back on molds and molded parts for many years now in an attempt to put the squeeze on them. In return, the automakers promise these suppliers more future business. Wonderful! Molders get to mold more parts for a longer period of time for less and less money!  Game supply and game card sleeve and trading card sleeve and soft card holder.

This new version of economics 101 has now become a play in the book of automakers outside of Detroit, too. According to an article in the July 23 Wall Street Journal (“Tesla Asks Suppliers for Cash Back”) by Tim Higgins, Tesla’s global supply manager sent a memo to suppliers describing “the request as essential to Tesla’s continued operation and characterized it as an investment in the car company to continue the long-term growth between both players.” Game supply and game card sleeve and trading card sleeve and soft card holder.

At least the tactic is new: These cash rebates aren’t a “feet-to-the fire, pay-to-play” scheme, they are an “investment” in the company “to help it become profitable,” Tesla told suppliers according to the WSJ article. Okay, Tesla, if your suppliers wanted to invest in your company to help it become profitable perhaps they could buy stock? Or, perhaps, your suppliers would like to help you become successful by making quality molds and molded parts for your Tesla 3, which the company is currently ramping up in production. Game supply and game card sleeve and trading card sleeve and soft card holder.

However, as the WSJ points out, this effort to claw back cash from the company’s suppliers “raises further questions about Tesla’s cash position, which has dwindled after it struggled to boost production of its first car designed for mainstream buyers.” The company finally made 5,000 Model 3s in a single week last quarter, noted the WSJ article. Game supply and game card sleeve and trading card sleeve and soft card holder.

Automakers and their suppliers have long had strained relationships. The Detroit Three have played these games with their suppliers since the 1990s, when I first started writing about these supplier/OEM struggles. The Detroit automakers have had plenty of supplier issues making conventional vehicles. Tesla’s electric autonomous vehicles are a whole new ball game. While the company touts its Model 3 as a vehicle for the masses, it’s not exactly fulfilling that role. Game supply and game card sleeve and trading card sleeve and soft card holder.

The WSJ article quotes Dennis Virag, a manufacturing consultant in the automotive industry for 40 years, who said that the request for cash rebates is “simply ludicrous and . . . shows that Tesla is desperate right now. They’re worried about their profitability but they don’t care about their suppliers’ profitability.” Game supply and game card sleeve and trading card sleeve and soft card holder.

I’ve written a few times about molders and moldmaking companies that have been forced to close thanks to these rebate schemes from the Detroit Three, which seems like a really bad way to maintain a good supply chain. Tesla just might learn the lesson Detroit has learned. When you put your suppliers out of business, your own business is in jeopardy. Game supply and game card sleeve and trading card sleeve and soft card holder.

The WSJ article said that Tesla has been “burning cash at the rate of about $1 billion a quarter” and will need to “pay down a $230 million convertible bond this November if its stock doesn’t reach a conversion price of $560.64.” Game supply and game card sleeve and trading card sleeve and soft card holder.

Checking today’s (July 23) stock price, Tesla’s shares were down $10.38 to $303.20 a share. Game supply and game card sleeve and trading card sleeve and soft card holder.