Auto Industry

Electrifying prospects

Tencent, China’s most valuable company, takes a stake in Tesla

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After three rounds of races on the Formula E circuit, China’s representative NextEV NIO, stands fourth in the rankings. That will please internet giant Tencent, which has joined Lenovo and Temasek as investors in NIO, a maker of electric cars. But it seems Tencent wants more action in the automotive industry. On Tuesday it said that it has accumulated a 5% stake in Tesla for about $1.8 billion, making it the American carmaker’s fifth largest shareholder.

Buoyed by the news, Tencent shares in Hong Kong climbed – indeed they have increased nearly 20% over the past three months having been a beneficiary of a trading programme to link Shenzhen and Hong Kong’s stock exchanges that began in December.

The rally has made Tencent China’s most valuable firm, with a market cap of $280 billion. In comparison its archrival Alibaba is trading at $266 billion and China Mobile is worth $226 billion. Tencent’s valuation also surpasses Chinese champions of the past such as banking giant ICBC ($245 billion) and oil mammoth PetroChina ($200 billion)

China Mobile, a state-owned carrier which provides the telecom infrastructure that makes Tencent’s services possible, has just announced a net profit of Rmb108 billion ($15.8 billion) for 2016 – which is to say it reported almost no earnings growth. The state firm has been obliged to take on more ‘national’ responsibilities by the government like building the 5G network, but it is also having to cut customer charges such as inter-provincial roaming fees (see WiC359).

Tencent is less encumbered and its commercial prospects show no sign of dimming. It also reported last week, but said its net profits had risen 43% last year to Rmb41 billion. Revenues climbed 48% to Rmb152 billion. At this rate of progress (and assuming the earnings of Chinese telecom carriers stay stagnant), Tencent’s profits could exceed those of China Mobile within three years.

Revenue from online games, traditionally Tencent’s most important business line, rose 34% to Rmb108 billion. Online advertising, which is based on the company’s hugely popular messaging apps QQ and WeChat, spiked 54% to Rmb27 billion. However, 21CN Business Herald says the most “pleasant surprise” from the results are new revenue streams such as payment and cloud services, which have surged nearly 2.6 times to Rmb17 billion.

That is part of Tencent’s “Connection” strategy, which aims to make its social platforms more interactive with a broader range of online and offline services.

Tencent founder and boss Pony Ma said the company continues to invest in newer technologies such as artificial intelligence (AI) and machine learning.

Top 5 Chinese FirmsTencent has a stake in Didi Chuxing, China’s largest taxi on-demand service, too. Another of its investments is in Future Mobility, which is promising to launch a driverless car by 2020.

Tencent’s rivals in China have also been busy in the same field. Baidu has a leadership position in mapping and is trying to exploit it in autonomous-driving technology. Alibaba is talking to Chinese carmakers about using its Yun OS software.

Details on how Tencent and Tesla might work together are lacking, although an obvious possibility is that Tencent might help Tesla do better in the Chinese market.

The prospects seem to have Elon Musk excited and he tweeted a welcome message to his newest “advisor”. In a subsequent tweet Musk noted that “very few” of the orders for its mass-market Model 3 sedan ar currently from Chinese drivers.

Tesla doesn’t manufacture its cars in China, so its vehicles are levied with import taxes of at least 25%. Perhaps Tencent can help in finding partners for local production. At $45 billion Tesla’s valuation is only $1 billion short of Ford’s. But that’s only a sixth the size of Tencent’s, making Tesla the junior partner – in terms of market capitalisation, at least – for now.


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