TSLA Tesla Inc

By Tim Higgins and Anne Steele 

Tencent Holdings Ltd. bought a 5% stake in Tesla Inc., giving the backing of China's most valuable company to the Silicon Valley electric-vehicle maker as it prepares to launch its first car aimed at the mass market.

The $1.8 billion Tencent paid makes it Tesla's fifth-largest shareholder, according to data from S&P Capital IQ. It marks a vote of confidence in Tesla Chief Executive Elon Musk at a time when he faces questions about whether he can meet his ambitious goals of delivering the $35,000 Model 3 sedan on time and at the scale he has projected.

Tencent acquired the stake through a combination of a stock offering by Tesla and shares purchased on the open market, according to a filing Tuesday. Tencent's stake is passive, meaning the company likely isn't seeking board seats or agitating for change.

A Tencent spokeswoman called Tesla "a global pioneer at the forefront of new technologies." Tencent's success comes from backing entrepreneurs like Mr. Musk, who combine vision, ambition and execution, the spokesperson said.

Mr. Musk, who is also chairman, remains Tesla's largest shareholder with a little more than 20% of the company. Tesla declined to comment.

Shares of Tesla, which have surged 26% this year, rose 2.9% in morning trading in New York.

Earlier this month, Tesla moved to strengthen its fragile balance sheet amid a risky ramp-up in production of the Model 3. At the time, it said it was offering $250 million in common stock and $750 million in convertible notes.

The sedan is part of Mr. Musk's bet to transform Tesla from a luxury car maker into a company that offers a mass-market electric vehicle, along with solar panels to generate energy to power its vehicles, and batteries to store that power at home and offices.

The Silicon Valley company -- which is unprofitable and deeply indebted -- plans to begin Model 3 production in July, and ramp up to 5,000 vehicles a week in the fourth quarter. But the cost has been high, and Tesla needs a cushion to move ahead in the capital-intensive auto industry. The company has more than $2 billion of debt due in 2018 -- a year during which it aims to sell significantly more vehicles than last year. It also plans to continue investing heavily in overhead and product creation in coming years.

Tesla recently closed its $2.6 billion acquisition of SolarCity, combining Mr. Musk's electric-car and solar-energy companies, and dropped "Motors" from its name as it signals it is more than just a car company.

Having a powerful friend in China could help Tesla as it eyes further global expansion.

The auto maker's revenue in China rose to $1.07 billion last year from $319 million in 2015 -- a faster rate of growth than in the U.S., where sales about doubled to $4.2 billion in the same period. China made up 15% of Tesla's $7 billion in revenue last year, compared with about 8% in 2015. The U.S. accounted for 60% of the company's 2016 revenue, up from 48% in 2015.

Tencent's investment in Tesla marks the highest-profile foray into the autos sector for the Chinese internet giant. Big Chinese tech companies have backed a wave of green-car startups in the country recently, with Tencent supporting smaller outfits such as NextEV and Future Mobility Corp.

Tencent, while little known outside China, is the world's largest game publisher by revenue. It owns "League of Legends" developer Riot Games Inc. and last year teamed up with Chinese investors in an $8.6 billion acquisition of Supercell Oy, the Finnish maker of "Clash of Clans."

Within China, the Shenzhen-based company is known for its social-media platforms WeChat and Weixin, which together have close to 890 million monthly active users and are fixtures in Chinese daily life.

Tencent has been on a tear of late, with shares surging more than 40% over the past year, thrusting it ahead of e-commerce giant Alibaba Group Holding Ltd. and Industrial and Commercial Bank of China, the world's biggest bank by assets.

--Dan Strumpf contributed to this article.

Write to Tim Higgins at Tim.Higgins@WSJ.com and Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

March 28, 2017 11:55 ET (15:55 GMT)

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