Expert answer:Assignment 2

Solved by verified expert:Hi, I will attach the instruction, the article, and the notes. here’s the question: (you can also see it on attachment) 1. Of what nature is Tencent’s investment in Tesla? How would you characterize Tencent as a stakeholder? (Notes: Do some research of Tencent’s evolution and evaluate types of investments they have made in related and unrelated fields, using such data, discuss investment types financial? Strategic? You may want to discuss Tencent’s core competencies, using class discussions) 2. What does Tencent’s investment mean for Tesla? Why is it good? Are there any risks? Are there any things that Musk should be concerned about? (Notes: discuss why Tesla needs investments, why would they want Tencent (refer to Q1 responses), research China Automotive market and strategic factors like domestic competition, technology, government roles, etc. List risks and Musk’s concerns) 3. How do you predict Tencent’s investment in Tesla will evolve in the future? What is the maximum holding that Tencent would want or be allowed to obtain? (Notes: based on your responses to Q1 and Q2, define 2 or 3 Options that Tencent can take, evaluate each Option (pros and Cons), then make a prediction)
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7/28/2017
Tesla Gets Backing of Chinese Internet Giant Tencent – WSJ
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https://www.wsj.com/articles/chinas-tencent-buys-5-stake-in-tesla-1490702095
TECH
Tesla Gets Backing of Chinese Internet
Giant Tencent
China’s most valuable company buys 5% stake in Elon Musk’s electric-vehicle maker ahead
of ambitious launch of $35,000 sedan
The cost to ramp up production for Tesla—a perennial money loser and deeply indebted—has been high, and the company
needs a cushion to move ahead in the capital-intensive auto industry. PHOTO: SAM MIRCOVICH/REUTERS
By Tim Higgins and Anne Steele
Updated March 29, 2017 5:35 a.m. ET
Tesla Inc.
TSLA +0.28% ▲
gained a potential ally in China after the country’s most
valuable company, Tencent Holdings Ltd.
TCEHY +1.04% ▲
, revealed it had bought a 5%
stake in the Silicon Valley electric-vehicle maker.
The $1.8 billion investment marks a vote of confidence in Tesla Chief Executive Elon
Musk, who is facing questions about whether he can meet his ambitious goals of
delivering the $35,000 Model 3 sedan on time later this year and at the scale he has
projected.
In a tweet Tuesday, Mr. Musk said he was “glad to have Tencent as an investor and
advisor to Tesla,” suggesting a possible deeper relationship between the companies
could come. Tesla declined further comment.
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7/28/2017
Tesla Gets Backing of Chinese Internet Giant Tencent – WSJ
Best known for its ownership of China’s largest social network, WeChat, Tencent could
play an instrumental role in helping Tesla set up a manufacturing operation in China,
said Michael Dunne, a longtime auto industry consultant who spent years in the
country. Tencent and Foxconn Technology Group, best known for manufacturing Apple
Inc.’s iPhones, are both investors in a startup called Future Mobility Corp., which aims
to make its own electric vehicles by 2020.
“This is highly significant,” Mr. Dunne said of Tencent’s new investment.
China is the world’s largest auto market and an important one for luxury-car makers.
Tesla has held discussions with the government in the past about assembly in China, and
Mr. Musk has said local production of vehicles in the country could cut the sales price of
Tesla vehicles by one-third, with savings from items such as import duties.
“Tencent’s success is partly due to our record of backing entrepreneurs with capital,” a
Tencent spokeswoman said Tuesday. “Elon Musk is the archetype for entrepreneurship,
combining vision, ambition, and execution.”
Tencent’s investment in Tesla is the latest—and highest-profile—foray into the auto
sector for big Chinese tech companies, which have recently backed a wave of Silicon
Valley green-car startups, including NextEV Ltd. and Lucid Motors Inc.
Tencent acquired the stake through a combination of a recent stock offering by Tesla
and shares purchased on the open market, according to a securities filing Tuesday.
Tencent’s stake is passive, meaning the company likely isn’t seeking board seats or
agitating for change.
Mr. Musk, who is also chairman, remains Tesla’s largest shareholder with about 20% of
the company.
Tesla’s revenue in China more than tripled last year to $1.07 billion—a faster rate of
growth than in the U.S., where sales about doubled to $4.2 billion. China made up 15% of
Tesla’s $7 billion in revenue last year, compared with about 8% in 2015. The U.S.
accounted for 60% of the company’s 2016 revenue, up from 48% in 2015.
Tesla, which is unprofitable
and deeply indebted, plans to
begin production of its Model
Tencent: Big in China, Looking Abroad
3 sedan in July and ramp up to
Heard on the Street: Tencent Makes It Harder to Bet Against Tesla
Tencent: Raising the Bar for China’s Most Valuable Company (March 23) 5,000 vehicles a week in the
fourth quarter. Mr. Musk has
set the ambitious target of
increasing overall vehicle production to 500,000 next year from about 84,000 last year.
MORE
But the cost of expanding production has been high, and Tesla needs a cushion to move
ahead in the capital-intensive auto industry. The company has more than $2 billion of
debt due in 2018.
Earlier this month, Tesla moved to strengthen its fragile balance sheet. At the time, it
said it was offering $250 million in common stock and $750 million in convertible notes.
Shares of Tesla, which have surged 26% this year, rose by 2.7% Tuesday in New York.
With a market value of about $45.3 billion, according to FactSet, Tesla is approaching
Ford Motor Co. to become the second-most valuable car maker in the U.S. Ford’s market
https://www.wsj.com/articles/chinas-tencent-buys-5-stake-in-tesla-1490702095?mod=djem_jiewr_MG_domainid
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7/28/2017
Tesla Gets Backing of Chinese Internet Giant Tencent – WSJ
value stood at about $46.4 billion, behind leader General Motors Co. with about $52
billion.
Tesla’s rise underscores the premium that investors are placing on Silicon Valley’s bold
attempt to loosen traditional auto makers’ grip on personal transportation.
Tech giants, including Alphabet Inc. and Uber Technologies Inc., are investing heavily in
technology that one day could remove drivers from vehicles and open new ways of
making money off transportation.
Traditional car makers such as Ford—which is 100 years older than Tesla with over 20
times the revenue—are racing to catch up by making their own plans for self-driving
cars and other technologies to move beyond their core auto-making businesses.
The Model 3 launch is part of Mr. Musk’s bet to transform Tesla from a luxury car maker
into a company that offers a mass-market electric vehicle, along with solar panels to
generate energy to power its vehicles, and batteries to store that power at home and
offices.
Tesla closed its $2.6 billion
acquisition of SolarCity in
November, combining Mr.
Musk’s electric-car and solarenergy companies, and
dropped “Motors” from its
name to signal it is more than
just a car company.
Tencent, while little known
outside China, is the world’s
largest game publisher by
revenue. It owns “League of
Legends” developer Riot
Games Inc. and last year
teamed up with Chinese
investors in an $8.6 billion
acquisition of Supercell Oy,
the Finnish maker of “Clash of
Clans.”
Its social network, WeChat,
counts 889 million monthly
active users.
Tencent has been on a tear of
late, with shares surging more
than 40% over the past year,
thrusting it ahead of ecommerce giant Alibaba
Group Holding Ltd. and
Industrial and Commercial Bank of China Ltd. , the world’s biggest bank by assets.
—Dan Strumpf contributed to this article.
Write to Tim Higgins at Tim.Higgins@WSJ.com and Anne Steele at
Anne.Steele@wsj.com
Appeared in the March 29, 2017, print edition as ‘Tencent Backs Tesla With $1.8 Billion
Stake.’
Copyright ©2017 Dow Jones & Company, Inc. All Rights Reserved
https://www.wsj.com/articles/chinas-tencent-buys-5-stake-in-tesla-1490702095?mod=djem_jiewr_MG_domainid
3/3
Global Enterprise and Competition
MGMT.5110
Assignment 2–Tesla and Tencent
Due date May 6, 2018
Review the article, “Tesla Gets Backing of Chinese Internet Giant Tencent” (you will find
the article in Blackboard) do additional research and answer these questions. You should prepare
your report according to this format:
Introduction/Context (write about one page summarizing the case; include the context,
that is what are the learning points)
Q1 (list the question)
A1 (your answer)
Etc.
Conclusion (write no more than one page of your conclusions and observations)
Work cited
Your paper is an analysis of the situation discussed in the article. You must research, collect
appropriate data and address questions with data and evidence. Use list (bullets), graphs, charts,
tables, etc. to make your report more effective (a sample is on Blackboard). Be sure to use data
available in the Case supplemented with additional research. Your report must be between 4 and
5 pages, 1.5 space with font TNR11, in Word document format and submitted in Blackboard
assignment dropbox.
*********************************************************
QUESTIONS:
1. Of what nature is Tencent’s investment in Tesla? How would you characterize Tencent as
a stakeholder?
(Notes: Do some research of Tencent’s evolution and evaluate types of investments they have
made in related and unrelated fields, using such data, discuss investment types financial?
Strategic? You may want to discuss Tencent’s core competencies, using class discussions)
2. What does Tencent’s investment mean for Tesla? Why is it good? Are there any risks? Are
there any things that Musk should be concerned about?
(Notes: discuss why Tesla needs investments, why would they want Tencent (refer to Q1
responses), research China Automotive market and strategic factors like domestic
competition, technology, government roles, etc. List risks and Musk’s concerns)
3. How do you predict Tencent’s investment in Tesla will evolve in the future? What is the
maximum holding that Tencent would want or be allowed to obtain?
(Notes: based on your responses to Q1 and Q2, define 2 or 3 Options that Tencent can take,
evaluate each Option (pros and Cons), then make a prediction)
Grading:
Topic
Introduction
Context
Q1
Q2
Q3
Conclusions
Points
10
5
25
25
30
5
Assignment 2 Notes
Assignment 2–Tesla and Tencent
Due date may 6, 2018
Review the article, “Tesla Gets Backing of Chinese Internet Giant Tencent” (you will find
the article in Blackboard) do additional research and answer these questions. You should prepare
your report according to this format:
Introduction/Context (write about one page summarizing the case; include the context,
that is what are the learning points)
Q1 (list the question)
A1 (your answer)
Etc.
Conclusion (write no more than one page of your conclusions and observations)
Work cited
Your paper is an analysis of the situation discussed in the article. You must research, collect
appropriate data and address questions with data and evidence. Use list (bullets), graphs, charts,
tables, etc. to make your report more effective (a sample is on Blackboard). Be sure to use data
available in the Case supplemented with additional research. Your report must be between 4 and
5 pages, 1.5 space with font TNR11, in Word document format and submitted in Blackboard
assignment dropbox.
Tesla Gets Backing of Chinese Internet Giant Tencent
QUESTIONS:
1. Of what nature is Tencent’s investment in Tesla? How would you characterize Tencent as
a stakeholder?
(Notes: Do some research of Tencent’s evolution and evaluate types of investments they have
made in related and unrelated fields, using such data, discuss investment types financial?
Strategic? You may want to discuss Tencent’s core competencies, using class discussions)
2. What does Tencent’s investment mean for Tesla? Why is it good? Are there any risks? Are
there any things that Musk should be concerned about?
(Notes: discuss why Tesla needs investments, why would they want Tencent (refer to Q1
responses), research China Automotive market and strategic factors like domestic
competition, technology, government roles, etc. List risks and Musk’s concerns)
3. How do you predict Tencent’s investment in Tesla will evolve in the future? What is the
maximum holding that Tencent would want or be allowed to obtain?
(Notes: based on your responses to Q1 and Q2, define 2 or 3 Options that Tencent can take,
evaluate each Option (pros and Cons), then make a prediction)
Grading:
Topic
Introduction
Context
Q1
Q2
Q3
Conclusions
Points
10
5
25
25
30
5
Tesla Gets Backing of Chinese Internet Giant Tencent
– In 2016, Tesla lost $675M with revenue of $7B; $18B in
debt
– Tesla needs continuous investments as they ramp up
production of Model 3
– China’s Tencent is fifth largest internet company. Subs
include wechat (“WhatsApp” in China), tenpay, etc.
– Invested $1.8B (5% equity) in Tesla
– Importance of China auto market – electric and luxury;
production lowering cost
– Tencent investment history of backing entrepreneurs
– Tesla is a risky investment but a very high return
potentials?
– Tencent objectives? Financial? Strategic?

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