Tesla Gets Chinese Backing

July 21, 2017

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In this episode of the TechTalk, we discuss electric car company Tesla receiving a significant investment from Chinese technology giant Tencent. Katz expands on what Tesla plans to do with the cash infusion, Tencent’s ownership stake and how this could help both companies enter the highly coveted self-driving car market. Dave also discusses a new billion-dollar fund formed by Apple that will invest in U.S. advanced manufacturing companies involved in 3D printing, green technology, medical devices and more.. 


Transcript

Dave Plaskow: Hello, and welcome to EisnerAmper’s technology podcast series. With more than 500 technology clients, we’re always interested in the latest industry trends and developments as well as any related business and accounting opportunities and challenges. Today we are talking about Chinese investment in Tesla. I’m your host Dave Plaskow and with us today is Dave Katz, Senior Audit Manager in EisnerAmper’s Technology and Life Sciences Practice. It’s another edge-of-your-seat episode of TechTalk. Dave, good to see you again.

Dave Katz:Dave, good to be here.  

DP: It sounds like Tesla is getting an infusion of Chinese capital.

DK: That’s right. The Chinese firm Tencent is putting $1.8 billion into Elon Musk’s electric car company.

DP:  I’ll tell you that Elon Musk, he does not let the grass grow under his feet. He is always up to something.

DK:  Sure is.

DP:  Tell us a little bit about Tencent, because I’m not sure if many people in the U.S. really know who they are and what they do.

DK:  Right, they’re not as well known in the U.S.; but, it’s a huge investment holding company – portfolio includes social media, instant messaging, video games, transportation and artificial intelligence. It’s considered one of China’s big three technology companies along with Alibaba for ecommerce and Baidu for web services, and it has an impressive market cap of about $275 billion.

DP:  So they’re a heavyweight. What kind of position will Tencent have with Tesla as a result of this investment?

DK:  The cash infusion represents more than eight million shares or about a 5% ownership stake, and that would make it Tesla’s fifth largest shareholder.  

DP:  Any particular reason Tesla needs the cash?

DK:  They want to use it for the product launch of the Model 3 electric car expected to go on sale later this year. It has a $35,000 price tag, so it’s Tesla’s attempt to make its vehicle more of a mass market item. I actually know some friends who are interested in getting them.

DP:  And might Tesla be looking to the Chinese market for its products?

DK:  Sure. Absolutely. It currently has showrooms in several Chinese cities, including Beijing and Shanghai. And Tesla’s exports to China were 15 percent of its revenues in 2016, and there’s thought that there’s significant growth potential there.

DP:  There’s another angle to this partnership isn’t there?

DK:  Yes. In addition to helping increase brand awareness in each other’s country, Tesla’s vehicles can also benefit from Tencent’s foray into AI or artificial intelligence. Tencent, Alibaba and Baidu are all leveraging their respective technologies to enter the self-driving car market.

DP:  That seems to be the white whale – that self-driving car market.

DK:  Sure is.

DP:  How is Tesla doing these days?

DK:  They’re doing pretty well. First quarter 2017 vehicle deliveries jumped 69% from Q1 2016. Tesla’s market cap increased to $46.5 billion, which now surpasses Ford which is at $45.7 billion. Globally, Tesla sells 80,000 electric cars annually but hopes to reach 500,000 per year by 2020.  

DP:  Okay. So they’re moving the ball forward. We haven’t chatted in a while. Anything else going on in the tech business world?

DK:  I did see something else. Apple’s CEO, Tim Cook, recently announced the formation of a $1 billion fund that will invest in U.S. companies in advanced manufacturing areas such as 3D printing, green technology, medical devices, smart infrastructure and other precision technology sectors. A fund could also support next generation coders for the exploding app markets. So, it appears to be an interesting investment move from our friends at Apple.   DP:  Jolly good. Well thanks, Dave, for your insights.

DK:  Great chatting with you again.

DP:  Thank you for listening to TechTalk as part of the EisnerAmper podcast series. Visit EisnerAmper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast where we get down to business. 

About John Pennett

john Pennett is the Partner-in-Charge of the National Technology and Life Sciences Group, and is a member of the Special Purpose Acquisition Company (SPAC) services team. H


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