Recently, the Chinese internet company ‘Tencent Holdings’ bought a 5% stake in Tesla Motors, the U.S.-based car making giant, for $1.78 billion. This was the most recent investment of the China-based internet company in the car making market. A U.S. regulatory filing disclosed the recent investment by Tencent.
Chinese presence in U.S. car technology boosted by Tesla’s recent deal
The recent investment by the Chinese internet giant provides the automaker a rich ally as it prepares to release its mass-market Model 3. It is a great deal for Tencent Holdings as well because it will be able to take a big step in the lucrative market of self-driving or autonomous car market. Also, the investment by the internet giant raised the price of Tesla shares on Tuesday by 2.7% to $277.45.
According to analysts, the automaker could assist the U.S.-based car making giant is selling and even building cars in China, which is the largest car market of the world. Jeff Schuster, senior vice president of forecasting for researcher LMC Automotive, said, “It certainly is a strong chess move for Tesla.” Schuster said that the internet company could help the automaker is navigating the Chinese market and in cash infusion.
On Tuesday, Elon Musk, the Chief Executive Officer of Tesla Motors, tweeted, “Glad to have Tencent as an investor and adviser to Tesla.” The CEO did not mention what he meant by Tencent being “advisor to Tesla” but he did note in a separate tweet that the automaker had very few Model 3 orders from China. Also, you must know that the affordable Model 3 electric vehicle was not formally introduced in China. In the United States, the mid-size and affordable electric car is due to go on sale later this year.
How will the deal be beneficial for Tencent Holdings?
The new tech like automated ride-sharing, self-driving cars, drones, autonomous delivery services, augmented reality, virtual reality etc. are gaining traction from all big companies from Apple to Facebook to Tesla and Uber. Facebook is working on augmented reality and virtual reality whereas Uber is working on a self-driving vehicle.
These new technologies have great potential to create new revenue streams and business models in the worldwide transportation sector and have attracted billions in investment from three Chinese tech companies, including Baidu Inc., Tencent Holdings and Alibaba Group Holding Ltd.
Adam Jonas, Morgan Stanley auto analyst, said in an investor note, “I would not be surprised to see Tencent and Tesla collaborate in the development and deployment of some of those technologies.” Currently as of December 31, the CEO of Tesla Motors holds a 21% stake in the electric car making company.