Chinese company Tencent picks up five percent of Tesla

China is the world's largest auto market and Tencent is one of Asia's largest tech companies – a powerful set of credentials to team up with Tesla.

First Look

The race to develop electric autonomous cars might have just become more interesting: Chinese internet giant Tencent has acquired a 5 percent stake in Tesla, becoming the fifth largest shareholder of the US electric car maker.

The Shenzhen-based company, known for messaging app WeChat, paid $1.78 billion for 8.2 million shares through a recent stock offering and open-market purchases, according to a regulatory filing to the Securities and Exchange Commission on Tuesday. The investment – the largest by a Chinese company in the market of self-driving vehicles and related services – provides Elon Musk’s Tesla with an additional boost as it prepares to launch its mass-market Model 3 electric sedan this year. 

“Tesla is a global pioneer at the forefront of new technologies,” a Tencent spokesperson said Tuesday, MarketWatch reported. “Tencent’s success is partly due to our record of backing entrepreneurs with capital; Elon Musk is the archetype for entrepreneurship, combining vision, ambition, and execution.”

Although famous for its messaging, media, entertainment, and payment services, Tencent, founded in 1998, has been betting its future on lucrative markets, particularly new transportation technology and services.

The company has invested in several Chinese electric vehicles startups, including Nio, a Shanghai-based electric vehicle startup that was previously known as NextEV, and Shenzhen-based Future Mobility. Tencent also has stakes in taxi-hailing app Didi Chuxing, the world’s second-largest ride services company behind Uber. Didi acquired Uber China’s assets last year. 

The move to buy Tesla’s shares might align with Tencent’s vision of an artificial intelligence future. With more than 250 people in its AI lab, the company has been investing in AI research, hoping to break new ground in social media and gaming. 

“Tencent used to be a product-driven company. Now we want to transform into a technology-driven company,” Zhang Tong, director of the research unit, told Bloomberg last Thursday. “We’ve reaped the benefits of a large population, now we need to use technology and AI.”

Last week, Tencent’s founder and chief executive Ma Huateng also signaled an interest in exploring AI technology to develop driverless cars, according to Bloomberg. Morgan Stanley auto analyst Adam Jonas said in an investor note that a collaboration between Tencent and Tesla in the development and deployment of some of those technologies wouldn’t be so surprising, according to Reuters. 

Revenues of Tesla cars tripled to more than $1 billion in China last year, meaning the country has the potential to become the Palo Alto-based company’s biggest market. According to a recent regulatory filing earlier this month, China contributed more than 15 percent of Tesla’s $7-billion total revenue in 2016. 

“Having Tencent as a partner helps position Tesla to launch the Model 3 in China,” Joseph Fath, a fund manager at global investment management firm T. Rowe Price, told Bloomberg on Tuesday. 

Two other Chinese tech giants, Baidu and Alibaba, have also accelerated their efforts to develop autonomous driving systems, hoping to bring a commercial ride-hailing fleet to China and the United States after 2020. 

This report includes material from Reuters.