Tencent Buys 5% of Tesla

Chinese internet giant Tencent has become Tesla’s 5th largest shareholder. They took a 5% stake in Tesla through the purchase of 8.2 million shares worth $1.78 billion. This is the largest investment so far of a Chinese company in the niche of self-driving vehicles.

A Tencent spokesperson said, “Tesla is a global pioneer at the forefront of new technologies including electric vehicles, assisted driving, shared vehicles, digitising real-world information, sustainable energy generation and scalable energy storage. Tencent’s success is partly due to our record of backing entrepreneurs with capital; Elon Musk is the archetype for entrepreneurship, combining vision, ambition, and execution.”

This investment by Tencent is in line with its vision that artificial intelligence will dominate the future. Tencent has an AI lab that has more than 250 people working in it. It intends to invest more in AI research that will allow the company to make innovations in the field of social media and gaming.

Zhang Tong, director of Tencent’s AI lab, said, “Tencent used to be a product-driven company. Now we want to transform into a technology-driven company. We’ve reaped the benefits of a large population, now we need to use technology and AI.”

Joseph Fath, a fund manager at T.Rowe Price, said, “Having Tencent as a partner helps position Tesla to launch the Model 3 in China. Tencent is one of the superpowers in China along with Baidu and Alibaba, and they clearly have a lot of backing from the government.”

Musk has referred to Tencent’s CEO as an adviser and mentor.

In 2016, more than 15% of Tesla’s revenues came from China. Tesla made more than $1 billion in China last year. This signifies the potential that China will become Tesla’s largest market.

Tesla has stores in Beijing, Shanghai and Guangzhou and is expanding the places where superchargers can be available such as hotels, shopping centers and restaurants.

Brian Johnson, a Barclays auto analyst, said, “Tencent’s passive stake is not only a vote of confidence in Elon Musk and the future of EVs, but also may help in accessing the Chinese market.”

Tencent started in 1998 and is known for its messaging behemoth, WeChat. Tencent has also invested in Nio, which is an electric vehicle startup. Tencent also has investments in NextEV , Didi Chuxing, and Future Mobility.

David Chao, co-founder of venture capital firm DCM, said, “Tencent’s philosophy is to just invest in the best companies in the world. Telsa and Tencent could create WeChat fan pages and communities to boost the company’s brand in China and integrate the app into Tesla cars. There are so many connections. It makes a lot of sense.”

Tesla produces the Model S sedan and the Model X sport utility vehicle. According to JL Warren Capital, Tesla exported 1356 vehicles to China in January and February of 2017.

Tesla’s Model 3 was unveiled last year in March during a late-night party in Los Angeles. Around 373,000 Model 3 cars were pre-ordered then.

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March 30, 2017

Posted In: Personal Finance

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