HONG KONG (Reuters Breakingviews) - Tencent is drifting off course with Tesla. The $276 billion tech behemoth can easily afford a $1.8 billion stake in the Palo Alto-based group, run by entrepreneur Elon Musk. But Musk’s electric cars are not a great fit with the Chinese group’s cash-cow businesses, social media and mobile games. Making a huge, venture capital-style bet like this is a worrying sign of indiscipline.
Tencent’s 5 percent stake in Tesla, revealed in a filing on Tuesday, is a huge endorsement for Musk and his vision of self-driving electric cars. Tencent is the most valuable tech company in China, and the country is the world’s biggest auto market. The billionaire, who has been trying to boost sales in the People’s Republic, tweeted that he welcomed Tencent “as an investor and adviser”. There will be a welcome cash inflow too, although the size is not clear: Tencent both bought into a company stock offering earlier this month and purchased some existing shares in the market.
This is a manageable amount for Tencent: it had $2.6 billion of net cash as of December and generated roughly the same amount in free cash flow in the fourth quarter. Like arch-rivals Alibaba and Baidu, Tencent has poured big sums into chasing future sources of growth, like cloud computing and payments. And this follows earlier VC-like deals in related areas, including electric vehicle startups, artificial intelligence and into ride-hailing giant Didi Chuxing.
But backing smaller startups at home is one thing. Those investments give Tencent an early look at potential future competitors - and an advantage should it ever need to buy those businesses out. It is another thing to splash out billions on a passive stake in a publicly traded U.S. stock. Shareholders could buy Tesla stock themselves if they wanted.
Tesla’s bid to reshape the auto industry is also considerably bolder and riskier than mobile gaming or selling advertising on social networks, two businesses that generate large sums of cash from the get-go. This looks like a bit of reckless driving.
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