Tesla: Can You Spare a Dime?

Elon Musk’s firm is making a bold request of suppliers, rethinking traditional relationships.

It’s a situation many people find themselves in at some point in their lives: A family member asks for a few bucks to get through a tough time. You don’t want to see the family member suffer, though giving them money could alter the relationship in unintended ways.

But what happens when that request comes from a business partner, one whose existence your own company may depend on? It’s a quandary some leaders are asking themselves after it was revealed that Tesla has asked some vendors to give back some of the money the automaker had paid for goods. Tesla told the suppliers that it was essential to the firm’s continued operation. It puts the suppliers in an awkward position, says Alan Guarino, the New York-based vice chairman of Korn Ferry’s CEO and Board Services practice. “I would say to any supplier considering such a request, ‘So when did you become a bank or a venture capital company?’”

While rare, companies asking suppliers for retroactive cash back isn’t unheard of. Retailers and clothing firms have done it, and so have pharmaceutical firms. Indeed, there are even websites that offer suggestions on how to ask. Car companies have been known to ask for discounts on current contracts with suppliers. But Guarino says he’d advise executives against giving cash back for sales that have already been completed. The request shows that the customer isn’t acting like a business partner, he says. Worse, it could set up similar requests from other customers.

The notoriety of Tesla, of course, could complicate things. After all, it’s one of the most recognizable companies on the planet. Its push to produce as many electric cars as possible is well known, as is its ability to go through cash. (It went through about $1 billion in free cash during the first quarter.) Plus, since Tesla’s cars have so many specialized components, its failure could seriously impact the business of its suppliers.

But saying no to a rebate doesn’t have to be the end of a conversation, Guarino says. Indeed, there are many ways to help out a troubled business partner that could wind up strengthening the relationship. The vendor can change prices and financing terms on future purchases. Or the vendor can provide consulting help, potentially helping the customer to use the products more efficiently. A supplier could even try to help line up support from a bank or other financial firm. “A supplier should sit across the table and ask, ‘What else can we be doing to help you?” Guarino says.