Tesla CEO, Elon Musk, is a survivalist who knows how it feels to live on the entrepreneurial edge. Musk, who is also the founder and CEO of SpaceX, oversaw a complete turnaround of Tesla just as the company appeared to be on the brink of bankruptcy back in 2008. Through a small last minute fundraising, Musk has managed to change the fortunes of Tesla to make it one of the most successful companies in the world with a market capitalization of nearly $47 billion.
The billionaire investor, later on, sold the Tesla shares to Toyota and Daimler. As the US car maker prepares to launch its eagerly awaited Model 3 at a $35,000 price point, it appears as if Tesla is yet on the edge of another financial challenge. Musk and the management team at the company are reportedly planning to spend nearly $2.5 billion to bring the Model 3 to market by scaling manufacturing. This will amount to nearly all the free cash flow Tesla has at the moment. There is no doubt that raising such capital is not easy, and in fact, the US carmaker raised nearly $1 billion in March to finance this ambitious move.
The company also made another strategic move. Last week, Chinese Tencent announced that it had acquired a 5% stake in Tesla for about $1.8 billion. Even though it was reported that the Chinese investors will remain passive, Musk is hopeful that the deal will open the doors for the expansion of Tesla into China. The Asian economic giant has a huge market and could potentially offer an easy route for the US carmaker to increase car sales that now stand at 20 million cars globally. The deal with Tencent is a clear indication of the challenges electric cars have in penetrating the global market. Only 1% of total global car sales are electric.
However, the Model 3 is expected to stretch the bounds of possibility, but that is not where the true money is. China is already the place to be and the country is already dealing with massive environmental issues. Thus there is a feeling that very soon, the government could back electric vehicles in a big way. This is where Tesla sees how big the Chinese market is and takes advantage of that potential for rapid scalability and growth. The prospect for Tesla seems very good. For the last decade alone, Tesla has also attracted a list of impressive investors including high-end brands like Toyota and Daimler.
Even though at the moment the company’s stock is closer to the $300 mark, investment potential is still there, especially if you believe that electric vehicles could become big in the not so distant future. Besides, the IPO price for the US carmaker was under $20 so you can clearly see that it’s been on the up for the best part of a decade. The deal with Tencent could define the future of Tesla, especially now that the idea of EVs is rolling out in many countries around the world.
