In a letter to landlords sent this week, Tesla said that it wouldn't be able to pay its existing rent obligations and would instead need to reduce its monthly payments, according to the Wall Street Journal, which obtained a copy of the note.
"The rapid world pandemic that is now affecting our country has led Tesla to make strategic decisions to ensure the company's long-term success and growth," the letter read. "As a result of the increasing restrictions on our ability to conduct business, we would like to inform you that we will be reducing our monthly rent obligations effective immediately."
Tesla's letter suggests the company, like countless companies around the world, is feeling the bite of what could be a protracted coronavirus effect. Last week, the company furloughed some employees and cut salaries on others to help it weather the storm. A reduction in rent obligations is another step in that direction, but whether the company has the ability to unilaterally reduce its rent is another story entirely.
Depending on the nature of Tesla's lease agreements, the company may or may not be able to reduce its rent in certain disastrous events. It's also possible that Tesla, realizing that landlords have lost leverage, may just want to pay less in rent when it knows it can.
Indeed, the letter said Tesla will hold discussions with landlords to determine whether they "can continue to partner and work together to ensure a continued and mutually beneficial relationship." In other words, Tesla wants to get more favorable terms. And landlords, who desperately need to collect rent to maintain their own bank obligations, may be more willing right now to negotiate.
Indeed, with landlords banned from evictions in several states, there's little recourse on tenants who don't pay rent or want to renegotiate their rent obligations. Landlords who need to pay mortgages are left with the very real possibility of changing terms just to keep cash flow coming in.
For Tesla, the move also suggests that the company is at least expecting a protracted struggle. What it may mean in the long term, as Tesla works to further cement its position in the car business, is something to watch.