Tesla cancels $100 million parts order, supplier SHW suffers in strict Model 3 sourcing program.

Tesla cancels $100 million parts order, supplier SHW suffers in strict Model 3 sourcing program.

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It’s crunch time for Tesla. The electric car manufacturer has boasted about its promise to deliver 500,000 vehicles per annum, but it has a deadline looming for the release of its third model. There have been reports of delays and concerns about whether the company can follow through on its early promises to investors.

Now, it appears that the company has parted ways with a key supplier, SHW Automotive, after terminating a 100 million euro ($107m) order for a component that was critical to the Model 3 release. SHW Automotive’s stock price plunged almost 10% after announcing that the order had been cancelled due to low quality.

The news about the cancellation led to speculation in the industry as to whether the new Trump administration had put pressure on Tesla to cancel the order in order to support American manufacturing. However, Elon Musk’s company has denied this. Instead he stated that the supplier was fired because they could not comply with the company’s strict sourcing standards and deadlines.

The move was reportedly a part of the company’s overall effort to ensure that Model 3 production remains on-schedule. Automakers generally have a ‘Plan B’ in such cases of supplier cancellations, and Tesla is no exception. It is expected the company will either bring the part in-house or place a new order with a more reliable supplier.

SHW Automotive has stated that it plans to seek damages from Tesla for the cancelled order. However, the situation is unlikely to affect Tesla’s production timeline for the Model 3, which plans to roll during H2 2017. This also follows a recent announcement by Tesla that its upcoming Model Y will be built in a new plant to be located in the US.

Tesla’s ability to reach popular price points with the Model 3 is seen by some analysists as one of the key hurdles in its quest to revolutionise the automotive industry. With pressure on the company to perform, excluding suppliers that fall short of strict standards appears to be a necessary move in order for Tesla to maintain its ambitious timeline.

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