ACQUISITIONS
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Tencent

Chinese internet giant Tencent buys 5pc stake in Tesla for US$1.8b

PUBLISHED : Tuesday, 28 March, 2017, 8:53pm
UPDATED : Wednesday, 29 March, 2017, 12:39am

Chinese internet giant Tencent Holdings has thrust itself onto the front lines of building the car of the future, with its acquisition of a 5 per cent stake in US electric carmaker Tesla for US$1.8 billion.

Tencent had accumulated about 8.2 million shares of Tesla from the California-based company’s registered offering on March 17 and through open market purchases, according to the carmaker’s filing to the US Securities and Exchange Commission on Tuesday.

That has made the Chinese company the fifth-largest shareholder in Tesla, according to data from Bloomberg.

“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,” said a Tencent spokesperson on the rationale behind its major investment in the company controlled by billionaire chief executive Elon Musk.

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Tesla is one of only nine US-listed companies with annual revenue of more than US$5 billion that are expected to organically grow at about 20 per cent for the next two years, according to Bernstein Research. The firm is valued at US$45 billion, which rivals that of General Motors at US$52 billion, Ford at US$46 billion and BMW at US$54 billion.

“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,” the Tencent spokesperson said.

With the Tesla deal, Tencent appears set to parlay its expertise in managing China’s largest social media platforms, QQ and WeChat, into the electric car market, which is going through a boom period.

Tesla, however, is not Tencent’s first foray into the electric car industry. In 2015, the company invested in Tesla’s Shanghai-based rival NextEV, which manufactures electric cars in China.

“This is positive news for both Tencent and Tesla. It shows Tencent’s ambition in the automobile industry,” said Marie Sun, senior equity analyst at Morningstar. “The new generation of automobiles will be software and system-driven, such as autonomous cars.”

This is positive news for both Tencent and Tesla. It shows Tencent’s ambition in the automobile industry
Marie Sun, senior equity analyst at Morningstar

Sun said Tencent already has a large platform of internet services and mobile apps, and may be looking to cooperate with Tesla in connected systems for smart cars.

Tencent’s latest investment will enable it to match similar moves by Chinese internet peers Baidu and Alibaba Group, both of which have poured money into the development of connected cars and autonomous driving technology.

“The large-scale use of connected, electric vehicles still needs time in China, so Tencent still has time to catch up,” Sun said. “After all, Tencent’s internet services are still very sticky for its users.”

E-commerce juggernaut Alibaba, which owns the South China Morning Post, last July unveiled an internet-connected car together with the state-owned carmaker SAIC Motor.

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Online search giant Baidu has been working on its self-driving car project since 2013 and plans to enable mass production of these vehicles by 2021. Baidu has a permit from California’s Department of Motor Vehicles to test its vehicles in the state.

“Chinese companies often invest in US firms with advanced technology that can later be applied to the Chinese market,” said Joel Backaler, a managing director at Frontier Strategy Group and author of China Goes West, a book about Chinese companies going global. “This is likely the case for Tencent’s investment in Tesla because of China’s growing EV market and Tencent already being an investor in Chinese firms like Nio and Didi Chuxing.”

Tencent’s shares were up 0.53 per cent to close at HK$226 on Tuesday, ahead of the news of its Tesla shares acquisition.

Additional reporting by Robert Delaney