Tesla Inc (NASDAQ:TSLA) and Tencent Holdings Ltd (OTCMKTS:TCEHY) might be strange bedfellows. The former makes electric cars and solar roofs. The latter is the primary name behind online messaging app WeChat (though it sells and supports a variety of apps).
Nevertheless, Tencent recently acquired $1.8 billion worth of TSLA stock, making the Chinese technology outfit the fifth largest Tesla stock holder. That resulted in a 3% bump to TSLA stock by Tuesday afternoon.
Faithful fans of Tesla and equally faithful owners of the stock are clearly stoked, holding the sizable purchase up as a trophy of sorts. They might want to be a little careful about reading too much into the news … particularly as a hint that the young carmaker is on the cusp of being acquired.
On the other hand, there’s no denying Tencent’s interest — underscored by a financial commitment — speaks volumes about the promise of TSLA stock.
Tesla Has Been Stuck
In the sense that Tencent Holdings has its finger on a lot of technology pies, the news isn’t shocking. Aside from WeChat (the fourth most popular messaging app in the world), the company operates popular online games such as League of Legends, is part owner of China’s ride-hailing service Didi Chuxing, distributes digital music, maintains a microblogging platform, and is wading deep into artificial intelligence waters, among other things.
Tacking on a piece of Tesla doesn’t make Tencent noticeably more jumbled than it already is.
Nevertheless, if nothing else, the big chunk of TSLA stock that Tencent recently acquired is something of a moral victory for a company that has struggled to keep investors interested. The current price of $270 is roughly where Tesla shares were trading in the third quarter of 2014.
Indeed, the stock has yet to retest its September-2014 peak of $291, even though it is arguably more investment-worthy now than it has ever been at any point in its history.
The mid-priced electric car, the Model 3, is set to begin production later this year, and interest in its new solar shingles is reportedly significant — CEO Elon Musk thinks they’ll eventually capture 5% of the nation’s roofing market.
Dilution Doesn’t Matter
That said, Musk hasn’t exactly done investors any favors by raising funds several times since that 2014 peak by issuing new debt, more TSLA stock or both. Over the course of the prior three years, Tesla has garnered $6.5 billion in funds that was either dilutive, or added liabilities to the balance sheet.
Tesla raised another $1.15 billion this month, mostly via new debt, though it did sell another $250 million worth of common stock. Those funds were necessary to ramp up capacity for the large-scale production of the Model 3.
But Tencent CEO Ma “Pony Ma” Huateng isn’t deterred by the dilution, debt obligations and Musk’s penchant for overestimating deliveries, commenting:
“Elon Musk is the archetype for entrepreneurship, combining vision, ambition, and execution. Tesla is a global pioneer at the forefront of new technologies including electric vehicles, assisted driving, shared vehicles, digitizing real-world information, sustainable energy generation and scalable energy storage.”
Given Tencent’s history under Huateng, he knows what he’s talking about when it comes to turning an idea into a revenue-bearing profit center. If he says electric cars, energy storage and electric cars are worth pursuing and that Musk is doing it well, then Musk is arguably barking up the right tree the right way.
Bottom Line for TSLA Stock
A reason to take on a position in Tesla stock if you don’t have one already? That kind of thinking might be a bit over the top; Huateng doesn’t have access to any more information than anyone else does.
On the other hand, Huateng has made billions by being forward-thinking, and seeing — and seizing — opportunities before the average investor does. Perhaps he has noticed that India’s solar market is about to explode, or understands just how much of an impact China’s support for electric vehicles could have on Tesla’s bottom line.
In that light, Tencent’s new stake in TSLA stock could be interpreted as something of a pseudo-endorsement from a guy who knows what he’s talking about.
Just bear in mind that it wasn’t technically Huateng’s money, and that TCEHY can afford to wait a long time for the investment pan out. Not every regular investor can do that.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.