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Tesla Raises More Money While China’s Tencent Buys Stake

Tesla Raises More Money While China’s Tencent Buys Stake.

Positive Signs For Tesla, But There’s Still A Big Hill To Climb.

“Tencent’s passive stake is not only a vote of confidence in Elon Musk and the future of EVs, but may help in accessing the Chinese market”

While Tesla Inc works frantically to meet its ambitious sales targets for the upcoming new Model 3, its finances were in the news as it raised $1.2 billion in new funding, while Chinese technology giant Tencent Holdings bought a 5 per cent stake.

The share and convertible debt offering by Tesla had been long expected, and the Wall Street Journal’s Heard on the Street’s headline was “Tesla Should Fill Its Coffers While It Can”.

“Not only can it use some permanent capital, but the opportunity to raise it in the stock market has rarely been better. The shares trade at a stratospheric valuation: Tesla’s market value of more than $40 billion is near an all time high,” said Street columnist Charley Grant.

“There is no guarantee that the capital market will remain as friendly in the future. While it hasn’t exhausted its reservoir of goodwill, Tesla doesn’t have a profitable business it can lean on if it does,” Grant said.

And Tesla’s voracious appetite for money probably isn’t sated.

“Don’t be surprised if Tesla returns to the shareholder well sooner rather than later,” Grant added.

The investment by China’s Tencent was a big surprise. Tencent is best known for its WeChat mobile app, and is a big investor in gaming, entertainment, cloud computing and online financing, and competes with Alibaba and Baidu.

Reuter’s Breaking Views columnist Robyn Mak didn’t think it made much sense for Tencent , but described it as a “huge endorsement” for Tesla CEO Elon Musk’s vision of self-driving electric cars.

Confidence vote
Barclays Equity Research agreed on the investment’s value to Tesla.

“Tencent’s passive stake is not only a vote of confidence in Elon Musk and the future of EVs, but also may help in accessing the Chinese market,” said Barclays analyst Brian Johnson.

Morgan Stanley said Tencent’s investment could accelerate market appreciation of Tesla’s pole position in the race to share, autonomous, electric transport.

Street columnist Grant agreed that Tencent’s move would make it easier for Tesla to raise funds economically, but had reservations too.

“Given the onslaught of competition and execution risk, though, the weight of the evidence still argues strongly against Tesla being worth $40 billion or anything close to it, even if it raises enough cash to make the Model 3 a mass-market vehicle,” Grant said.

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