News is breaking this morning that Tesla Inc (NASDAQ: TSLA) is sending letters to its suppliers, asking for a handout. Well, what they’re really asking for is a hand-back, hoping that its suppliers might refund them some money. As you could imagine, the news upset investors as it raises questions with regard to the company’s financial capabilities.

TSLA Reportedly Asks Suppliers For Refunds

The story first broke on the Wall Street Journal after the news outlet said that it reviewed a memo from Tesla to a supplier last week. According to the memo, Tesla asked the supplier, and likely others, for refunds of money that it has paid them since the year 2016. These are funds that were paid to suppliers both for coming projects and past work.

In the letter, Tesla said that it is asking for the refund in order to reach profitability. Ultimately, the company parsed the refund as an investment in the future success and financial stability of TSLA. In turn, suppliers would benefit from a continuing relationship with a large electric automaker.

The Refund Is Very Concerning

It’s odd for a large publicly traded company to ask its suppliers for refunds, but more than odd, it can be a very damning sign. The truth is that the request is a sign that TSLA may be heading into some serious cash flow issues.

Think about it, if the company had the cash flow to continue operations, would it really be looking for a refund from suppliers? If it was really about a profitability issue, rather than a cash flow issue, wouldn’t it make sense to ask for discounts on future orders instead?

The fact that instead of asking for discounts, Tesla asked for a refund suggests that the company is hurting financially. This is a big surprise as the company’s CEO, Elon Musk recently assured investors that the company would reach a profit by the end of the year.

The Refund Request Comes Following A Key Milestone

Recently, Tesla announced that it had reached its goal of producing 5,000 Model 3 vehicles per week. The milestone came after months of delays and roadblocks. Considering this, the concern surrounding a potential cash flow issue is only greater. At the end of the day, it took the company far longer to reach the 5,000 vehicles per week production mark for the Model 3. This extended period of time of producing less than expected could have had a large impact on the compnay’s cash flow, and with the request for a refund in mind, it likely did.

Should You Dig Into TSLA Now?

Often times, when we see dips in the market, especially on well known stocks like Tesla, investors will dive in, hoping to take advantage of a discount. Is now the time to dive in? In my opinion, the answer is no! At the end of the day, TSLA may be having cash flow issues, and no matter how well-known the company is, cash flow issues can lead to dramatic declines in the value of the stock that represents the company. So, jumping in now would likely be a mistake. Nonetheless, as the disclaimer at the bottom of this page states, I am not an investment advisor and it’s always best to do your own research or speak to your personal financial advisor when making investment decisions.


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