Tencent’s Tesla stake could help the US carmaker expand in China, analysts say

Internet giant Tencent’s investment in Tesla could help the US-based electric car company gain a stronger foothold in China and even facilitate Tesla in manufacturing its vehicles in the country, according to analysts.

A filing to the US Securities and Exchange Commission on Tuesday showed that Tencent bought a 5 per cent stake in the California-based carmaker for about US$1.8 billion. On Wednesday, Tencent’s shares closed up 2 per cent at HK$228 on the Hong Kong stock exchange.

Tencent’s stake in Tesla could mean the latter would find it easier to realise its ambitions of manufacturing vehicles in China, thereby lowering the cost of selling Tesla vehicles to Chinese consumers and increasing its market share, according to analysts.

“Tencent is a massive company in China, it could acquire companies with the license to manufacture automobiles in China. Through a joint venture with Tencent, Tesla could produce their vehicles [in China],” said Zhang Yu, managing director of Shanghai-based research company Automotive Foresight.

As Tesla doesn’t currently manufacture its cars on the mainland, its vehicles are levied with import taxes of at least 25 per cent. The company has long had plans to set up a China manufacturing plant to lower costs, with Tesla chief executive Elon Musk tweeting in 2015 that such a factory could start operating in 2019.

Tesla considers China one of its most important markets, but the company has run into strong headwinds in the country, including a lack of demand for its luxury Model S electric sedan in 2015, a year after its China launch.

In a tweet on Tuesday, Musk said that “very few” of its more than 370,000 pre-orders for its mass-market Model 3 sedan were from China, although Tesla previously said that China was its second-largest market for Model 3 in terms of reservations.