Tencent Holdings Ltd, a Chinese company, purchased nearly $2 billion of Tesla Inc shares. This represents nearly 5 percent of company. This marks the latest move by a Chinese company to join the self-driving vehicle market. Tencent joins several large U.S. money management firms in owning Tesla Inc shares.
The investment gives Tesla more money as it preps to release the Model 3. The Model 3 arrives later this year. Tesla shares rose about 3 percent to $277.03 today. The company now rivals Ford as one of the most valuable U.S. auto companies.
Tencent owns a U.S. office in Silicon Valley as does Baidu and Alibaba, two other large Chinese companies.
According to Reuters: “Founded in 1998 by entrepreneur Ma Huateng, Tencent is one of Asia’s largest tech companies, best known for its WeChat mobile messaging app. With a market capitalisation of about $275 billion, it is roughly six times the size of 14-year-old Tesla, whose $46 billion market cap on Tuesday matched that of 114-year-old Ford.”
Tencent owns about 8.2 million Tesla Inc shares making it the fifth-largest shareholder. Elon Musk remains the largest owner of Tesla Inc shares. His stake reflects 21 percent ownership in the company.
As we reported previously, Tesla Model 3 may become the worst thing to happen to the automaker. Demand for the new vehicle grows but consumers want large trucks and SUVs. Those vehicles garner big profits, a plus for automakers. In addition, compact crossover SUVs remain the auto of choice. Automakers want to keep making small cars. Last time, gas prices spiked big time when they reduced small car production.
Then, and only then, did small vehicles become in vogue. The current political environment makes it hard to move small-car production to other countries. Those countries may offer cheaper labor costs. The Tesla Model 3 shall arrive in this new world in late 2017. Tesla aims to produce 10,000 of those cars per week in 2018. The company plans to deliver 500,000 annual car deliveries in 2018. The Tesla Model 3 logged nearly 400,000 pre-orders for the car.
The question remains: Will Tesla profit from the much lower profit margin of the new car? Some pundits cast doubt that Tesla can. Plus, history shows the company’s earnings fluctuated over time. Plus, PR disasters hurt the company’s image. We reported previously that Tesla’s fourth quarter earnings fell short. The company lost money after making a profit during its third quarter. Notably absent was guidance on vehicle deliveries for 2017.
In 2016, the auto maker predicted delivering about 90,000 vehicles. But the company managed to sell only 75,000. The 2017 year will yield about 50,000 Model S and Model X vehicles all together. That is up to 71 percent for the same period in 2016. Tesla fourth quarter earnings revealed the company will make 5,000 of its new Model 3 cars during its fourth quarter.
Tesla Inc Shares Buoyed By Model 3 Hype
But the company will make 10,000 vehicles per week sometime in 2018. CEO Elon Musk wants to deliver 500,000 vehicles annually by that year. Still the company must increase its output greatly to meet that goal. Tesla fourth quarter earnings did not receive a comment from the auto maker.
While its production woes continue, it faces issues in its showrooms. Lastly, several accidents occurred over the last year due to this new technology. Pang was one such driver. His Tesla Model X crashed while the owner headed from Seattle to Yellowstone National Park in Montana.