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Tesla and Tencent

Essay by   •  February 8, 2019  •  Case Study  •  1,770 Words (8 Pages)  •  13 Views

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Tencent, a Chinese game publisher company, now has 5% market stake in Elon Musk’s Tesla Inc, making this the latest investment of Chinese tech companies in start-up companies in Silicon Valley that focus on green cars. Considered not a brute acquisition but rather a passive one - because of how Tencent got its shares: through personal offering by Tesla and buying stocks on open market- Tencent is said to aid Tesla Inc. set-up a manufacturing plant in China . This is a move by the latter to reduce Tesla vehicles sales price by a third by reducing import duties. Mr. Musk did not offer any more details about the acquisition other than mentioning that Tencent is “an investor and advisor to Tesla” in one of his tweets last month. Understanding this much deeper, it means that there is more to the recent relationship between the two companies.

Elon Musk is under public scrutiny these past years for his ambitious goals of developing and putting into the auto market the Model 3 Tesla car, priced at $35,000 each and the number of these cars to be produced by the end of the year. Observers are watching how this embattled CEO can get out of this dilemma, considering that Tesla Inc now is deep in debt of more than $2 billion to be paid this year. But all is not lost because “it was offering $250 million in common stock and $750 million in convertible notes.” Apart from that, it is riding on the trend where investors are looking for companies that are trying to break the monopoly of traditional cars on transportation by relying on technology. In addition, it only but logical that one of Tesla’s manufacturing plants be put in China because the latter holds the title of being the largest auto market and the demand for luxury cars there is extremely high. Furthermore, Tesla revenues in China has upsurge to $1.07billion in 2017, making up 15% of the total revenue of the said company. While it is fast becoming a very significant car maker in the US, Tesla Inc should not slack for even the traditional auto makers are creating their versions of fuel-efficient driverless cars Elon Musk still owns 21% shares of Tesla, Inc.

Tencent is known to backup entrepreneurs with a vision, exactly like Mr. Elon Musk (from wsj pdf attached). However, one must note that Tencent is also on investor to Future Mobility Corp, a company that plans to develop electric vehicles by 2020, a soon-to-be direct competitor of Tesla Inc. While not known outside China, Tencent is considered a major player within its homebase. Recently, it has acquired, together with other Chinese investors, Supercell Oy, the developer of Clash of Clan. It was worth $8.6 billion. Apart from this, it also owns League of Legends, a multiplayer online game developed by Riot Games, making it “the world’s largest game publisher.” It also owns WeChat with more than 899 million active users.

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Who gets the bigger bargain remains to be seen. One thing is for sure, though. If it is Tesla’s aim is to get a market share in China, its biggest market, it surely has a strong ally in Tencent. In global enterprising, one loses some and wins some. Winning or losing depends on the degree of risk.

1. Of what nature is Tencent’s investment in Tesla? How would you characterize Tencent as a stakeholder?

While Tencent is predominantly known as a major game developer, like many Chinese companies, it has ventured into acquiring shares in companies based in Silicon Valley, all for the good reasons. Certainly, the move of Tencent to buy 5% of Tesla is more strategic than financial and all the more passive based on what the company indicated on the record. True that Tencent was vocal in saying that they fund companies that have true vision similar to Tesla, judging by the companies they acquired or have shares in, Tencent indeed has something more in mind .

It seems that Tencent wants to venture into electronic vehicles, or should we say, autonomous vehicles. Of the recent, it has invested in cloud services, Tencent Cloud, algorithm (AI Lab) and digital maps (NaviInfo). Considering that Tesla is in the top spot when it comes to electric vehicles, it is ripe for the picking for Tencent because the latter has plans of developing their own brands of autonomous cars in the a few years. With the technology that Tesla brings to the table, Tencent will surely benefit from this. To note, Tencent has also invested in NextEV and Future Mobility, both have plans of electronic vehicle development mind . On the other hand, Tesla has recently acquired a company that produces solar panels and batteries. This would be very vital for Tencent if in case there is a major collaboration between the company and Tesla. It has also stakes in the second largest ride services in the world, Didi Chuxing and Lyft, an Uber rival.

Looking at the bigger picture, there would be higher demand for autonomous and electronic vehicles in China . This would put Tencent in a very good position in the auto market in its home base regardless Tesla is granted permission to widen its market in Chinese soil. One has to take note that China prioritizes locally manufactures and produced Chinese products than imported ones like from Tesla.

Self-driving technology is the future of driving- and Tencent is jumping into the AI bandwagon as part of its future growth drivers . With Tesla’s advanced AI and experience in electric vehicles, Tencent may well become the first big player in China to release autonomous cars. The influence of Internet is also one of the strategic considerations of Tencent, it seems. The company aims to be the first in everything related to Internet in China in the future.

Question 2: What does Tencent’s investment mean for Tesla? Why is it good? Are there any risks? Are there any things that Musk be concerned about?

With a large deficit Tesla has, it indeed helps fund its Model 3 Tesla car. Another thing that is quite clear is that transportation is about to change, that there is a market with high opportunity- and it goes beyond selling electronic vehicles . In connection, apparently Tencent is investing deeply in technology that has something to do with AI (for the autonomous cars) and ride-hailing apps, similar to DiDi Chuxing. It should be noted that China is the biggest market of Tesla outside the United States with 24 stores, 114 supercharging stations and 384 regular ones

However, nothing comes without risk. While Tencent’s acquisition may help boost Tesla’s supposed plan to penetrate the Chinese market even more, it does not guarantee it because of some issues:

• China supports Chinese automakers. There is a Chinese policy “Made in China 2025” that supports locally produced and made technology.

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