Tesla’s approach to working capital allows for strong sales growth
A new year and another story emerged this week about how Tesla continue to exceed expectations. Reuters have reported on record quarterly deliveries for the electric car manufacturer, a story made more remarkable given the global chip shortages that have plagued the automotive industry. Whilst some carmakers have been forced to halt production at an estimated cost of 5% of sales, Tesla is on a trajectory that Elon Musk’s SpaceX Starship would be proud of.
What has protected Tesla?
What is it that Tesla has done differently that has protected them from some of the issues faced by their competitors? In May 2021, the Financial Times published an article ‘Tesla set to pay for chips in advance in bid to overcome shortage’. This may just provide the answer.
While buying their own chip manufacturing plant was ruled out due to complexity and expense, Tesla effectively purchased its production capacity by making upfront payments to their suppliers. What was considered an unusual step (not least due to the potential for premium pricing for components) now seems to have been a very astute decision. These advance payments have guaranteed Tesla’s supply of chips and enabled them to keep up with growing customer demand.
What can we learn?
Tesla’s foresight is clearly paying dividends and providing them with the certainty they need to be able to deliver on customer orders without the reputational damage of lengthy delays. For their suppliers, upfront payments can ease working capital pressure enabling them to concentrate on production and order delivery.
As the world starts to finally adjust to working in a pandemic world, all corporates are going to have a responsibility to look beyond their own four walls and right through their supply chains to see how working capital can be better deployed to support their suppliers. Fostering stronger partnerships with business-critical suppliers will build stronger resiliency throughout the supply chain and that works to everyone's advantage.
At Crossflow, we have created a marketplace for working capital funding that can transform a supplier’s cash flow as well as benefit the corporates balance sheet and supplier driven engagements. Uniquely, the Crossflow platform through its algorithms automatically selects the lowest cost of funding for suppliers. This means that suppliers can go “hands free” on accessing working capital and instead focus on making great products and delivering great services to their customers.
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Kevin Hayden is VP of Customer Engagement at Crossflow. He brings 35 years of professional experience from across the banking and banking software sectors. Over the course of his career, Kevin has implemented major business and infrastructure change delivering best practice, cost reduction and business transformation in a trusted adviser capacity.