Tesla Inc (NASDAQ: TSLA) is falling hard early on in the market this morning, and for good reason. Reports are breaking that the company has reached out to some of its suppliers, asking them for a refund; not because the suppliers haven’t kept their end of the bargain, but because TSLA is struggling to turn a profit. Of course, the news upset investors who are sending the stock downward in the market. Today, we’ll talk about:
- The news;
- what we’re seeing from the stock as a result; and
- what we’ll be watching for ahead.
TSLA Asks Suppliers For A Refund
As mentioned above, Tesla is having a rough start to the trading this morning after asking suppliers for a refund. Various news reports are breaking surrounding the story that the company has reached out to some of its suppliers, asking for some of their money back. The money paid to suppliers was paid by TSLA in various payments since the year 2016. Interestingly, the company is even asking for refunds for past work.
The story first broke on the Wall Street Journal after reviewing a memo that the company sent to a supplier last week. Essentially, the letter asked the supplier for a refund in order to help the company reach profitability. Of course, the news leads to concerns about cash flow at TSLA even though Elon Musk has provided investors with assurances that it will reach profitability by the third or fourth quarter of this year.
Why The News Is So Concerning
At the end of the day, any time a big company like Tesla asks its suppliers for a refund, which doesn’t happen often, it’s a sign of distress. While Musk has assured investors of profitability by the end of the year, if cash flow wasn’t a concern, the auto-maker might ask for a discount, rather than asking for a refund. Ultimately, the fact that a refund was requested shows that the company is likely struggling heavily with cash flow as we speak.
What We’re Seeing From The Stock
As investors, one of the first lessons that we learn is that the news moves the market. In the case of Tesla, the news that was released proved to be overwhelmingly negative. After all, the fact that the company is reaching out for a refund is a big red flag, and investors are reacting. As is normally the case, our partners at Trade Ideas were the first to alert us to the gains. Currently (9:32), TSLA is trading at $298.88 per share after a loss of $14.70 per share or 4.69% thus far today.
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What We’ll Be Watching For Ahead
Moving forward, the CNA Finance team will continue to keep a close eye on TSLA. In particular, we’re interested in seeing how much, if any money is refunded. We’ll also be paying close attention to any financial data available surrounding the company to see just how bad things might be getting considering the request for refunds from suppliers. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!
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