When the news emerged that Tencent had acquired a 5 percent stake in Tesla for $1.8 billion last week, the electric car maker’s stock price trended upwards, indicating that shareholders were happy with the vote of confidence from a Chinese player of Tencent’s caliber. While the deal will do little to to bolster Tesla’s cash balance ahead of a challenging year (Tencent acquired the majority of its shares on the open market -> no money for Tesla), it might help Tesla gain a foothold in the Chinese market in the long run.
As our chart illustrates, the Chinese market for electric vehicles is the largest in the world and it’s poised for further growth. As Tesla looks to ramp up its production significantly over the next few years, China may become increasingly important to the company. Having a Chinese investor might help Tesla’s case in a market that is still dominated by local players.
With soaring car sales in China in mind, U.S. President Donald Trump might want to sway his Chinese counterpart Xi Jinping to grant American manufacturers easy access to the Chinese market. In 2008, sales in China caught up with those in the United States (at 6.7 million units). In 2016, sales stood at a whopping 24.4 million and counting. Sales of cars in other big manufacturing nations are almost stagnant.