Tencent Holdings Ltd. of China has invested to buy a 5% stake in Tesla Inc., the US-based electric car maker for an amount of 1.78 Billion Dollars. This marks the latest buying of shares by this internet company of China into the highly lucrative market of tech vehicles based on self-driving and other related services.
This investment by Tencent, which was revealed in one of the regulatory filings in the US, has provided Tesla with an ally that has deep pockets as the company prepares to launch their mass market Model 3 electric car. Shares of Tesla rose by about 2.7% to $277.45 on Tuesday as they closed in on the share price of Ford Motor Co as US’ second most valuable auto company right behind General Motors Co.
Analysts said that this deal with Tencent could also help Tesla Inc. to build or sell cars in the largest market of automobiles in the world, China.
The CEO of Tesla, Elon Musk said on Tuesday that he was enthusiastic to have Tencent as an adviser and investor to Tesla. The Model 3 is going to be out for sale for the general public by the end of 2017 in the US.
This expands the presence of Tencent in the emerging sector of investment, which includes electric cars that self-drive. This would be opening a lot of new and improved modes of transportation like deliver services and ride sharing services that are automated, as well as other ancillary services that could range from e-commerce to infotainment.
All these new technologies have a huge potential of creating new revenue streams and business models in the global sector of transportation and they have rightly attracted billions of dollars in investment from the tech giants of China, namely Baidu Inc., Alibaba Group Holding Ltd., and Tencent.
Adam Jonas, an auto analyst at Morgan Stanley said in an investor note on Tuesday that he won’t be entirely surprised if Tesla and Tencent collaborate in developing and deploying some of these technologies.
Similar to what Tesla is trying to do, many other startup companies that are being backed by Alibaba, Baidu, and Tencent are developing self-driving systems, which could be eventually introduced in the commercial ride sharing fleets in China and the United States by 2020.
Tencent is the fifth largest shareholder in Tesla with 8.2 Million shares in their arsenal. It is behind Musk and other investment companies T. Rowe Price, Baillie Gifford and Fidelity.
For helping the Model 3 production fund, Tesla raised about $1.2 Billion amount of funds by selling their common shares and all the convertible debt in start of March. According to Tencent, their shares were acquired in early March equity sale and open market as well.
Stake of Elon Musk was about 21% on December 31st.