Chinese social media company Tencent has purchased a 5 percent stake in Tesla for $1.78 billion, providing a boost to the company as it prepares for the launch of the Model 3 mass-market electric vehicle.
The shares of Tesla increased by 2.7 percent to $277.45 upon the announcement of Tencent's investment, with the company now close to overthrowing Ford as the second most valuable automobile company in the United States, next to General Motors.
Tencent Invests In Tesla
The $1.78 billion investment by Tencent into Tesla, which was revealed in a regulatory filing in the United States, comes just a couple of weeks after Tesla announced that it was looking to raise additional funding of up to $1.15 billion.
Tesla has been expected to try to raise more capital since late last year, with the net proceeds of the $1.15 billion offering to be used to strengthen its balance sheet. It will also reduce risks that might be associated with the rapid expansion expected for the business after the Model 3 is launched in 2018.
The investment by Tencent into Tesla will further help the ramping up of production for the Model 3. It is easy to see why a Tesla investment would be attractive to Tencent, as the social media company best known for its WeChat messaging app has recently expanded into transportation. It owns stakes in a pair of electric car startups based in China, namely NIO and Future Mobility Corp, and has also made an investment into Didi Chuxing, the ride-hailing company that purchased the China business of Uber.
With the investment, Tencent has become the fifth-largest shareholder in Tesla with 8.2 million shares in its possession, behind Tesla CEO Elon Musk and investment firms Fidelity, Baillie Gifford, and T. Rowe Price.
Tesla Expands Presence In China
Last year, Tesla's sales in China was reported at $1.1 billion, triple that of the $318 million reported in 2015. The Asian country represented 15 percent of the $7 billion in sales that Tesla achieved in 2016.
The United States remains the biggest market for Tesla, with $4.2 billion in sales last year. However, the company's growth in China is much higher, and with the investment by Tencent, Tesla has a clear path to further expand its presence in the country.
"Glad to have Tencent as an investor and adviser to Tesla," tweeted Musk, who later noted that there have been "very few" orders for the Model 3 from China, where the mass-market model has not yet been formally announced.
"Having Tencent as a partner helps position Tesla to launch the Model 3 in China," said T. Rowe Price fund manager Joseph Fath, adding that the Chinese company clearly has a lot of support from its government.
With Tencent as an investor, Tesla could receive assistance from the Chinese company in navigating its home market. China is the biggest automobile market in the world, and Tencent may help Tesla sell its electric vehicles into the country, and perhaps even eventually build the cars in China.
Tencent and Tesla could also soon collaborate on the development and launch of self-driving technology, which would lead to new transportation modes such as automated ride-hailing and delivery.
