By Tim Higgins and Anne Steele
Tesla Inc. gained a potential key ally in China after the
country's most valuable company, Tencent Holdings Ltd., revealed it
had bought a 5% stake in the Silicon Valley electric-vehicle
maker.
The $1.8 billion investment 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 later this year and at the scale he is
projected.
In a tweet Tuesday, Mr. Musk welcomed the tech giant as an
investor and "advisor," suggesting a possible deeper relationship
between the two companies could come. Tesla declined further
comment.
Best known for its ownership of China's largest social network,
WeChat, Tencent could play an instrumental role in helping Tesla
set up a manufacturing operation in the Middle Kingdom, said
Michael Dunne, a longtime auto industry consultant who spent years
in China. Tencent and Foxconn Technology Group, best known for
manufacturing Apple Inc.'s iPhones, are both investors in a startup
called Future Mobility Corp., which aims to make its own electric
vehicles by 2020.
"This is highly significant," Mr. Dunne said of Tencent's new
investment.
China is the world's largest auto market and an important one
for luxury-car makers. Tesla has held discussions with the
government in the past about assembly in China, and Mr. Musk has
said local production of vehicles in the country could cut the
sales price of Tesla vehicles by one-third, with savings from items
such as import duties.
A Tencent spokeswoman said Tencent's success comes from backing
entrepreneurs like Mr. Musk, who combine vision, ambition and
execution.
Tencent's investment in Tesla is the latest -- and
highest-profile -- foray into the autos sector for big Chinese tech
companies, which have recently backed a wave of Silicon Valley
green-car startups, including NextEV Ltd. and Lucid Motors Inc.
Tencent acquired the stake through a combination of a recent
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.
Mr. Musk, who is also chairman, remains Tesla's largest
shareholder with about 20% of the company.
Tesla's revenue in China more than tripled last year to $1.07
billion -- 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.
Tesla, 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. Mr. Musk has set the ambitious target of
increasing overall vehicle production to 500,000 next year from
about 84,000 last year.
But the cost of ramping up production 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.
Earlier this month, Tesla moved to strengthen its fragile
balance sheet. At the time, it said it was offering $250 million in
common stock and $750 million in convertible notes.
Shares of Tesla, which have surged 26% this year, rose by 2.7%
Tuesday in New York. With a market value of about $45.3 billion,
according to FactSet, Tesla is approaching Ford Motor Co. to become
the second-most valuable car maker in the U.S. Ford's market value
stood at about $46.4 billion, behind leader General Motors Co. with
about $52 billion.
Tesla's rise underscores the premium that investors are placing
on Silicon Valley's bold attempt to loosen traditional auto makers'
grip on personal transportation.
Tech giants, including Alphabet Inc. and Uber Technologies Inc.,
are investing heavily in technology that one day could remove
drivers from vehicles and open new ways of making money off
transportation.
Traditional car makers like Ford -- which is 100 years older
than Tesla with over 20 times the revenue -- are racing to catch up
with their own plans for self-driving cars and other technologies
to move beyond their core auto-making businesses.
The Model 3 launch 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.
Tesla closed its $2.6 billion acquisition of SolarCity in
November, 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.
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."
Its social network, WeChat, counts 889 million monthly active
users.
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 16:45 ET (20:45 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Tesla (NASDAQ:TSLA)
Historical Stock Chart
From Aug 2024 to Sep 2024
Tesla (NASDAQ:TSLA)
Historical Stock Chart
From Sep 2023 to Sep 2024