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Huge Growth In China By Tesla Inc Likely Spurred Tencent Stake

From Tesla Inc (NASDAQ:TSLA) shares jumped yesterday after news that Chinese investing giant Tencent Holdings had taken a passive 5% stake in the company.

Since then, analysts and investors have been wondering two things: why Tencent made the move, and why now?

The answers to those questions are becoming a bit clearer today, with Wall Street analysts weighing in on the topic. One firm spoke to CNBC and offered a well-informed take:

“I think Tencent likely wanted exposure to a company that was growing very quickly in electric and autonomous” vehicles, said Tasha Keeney, an analyst on the ARK Industrial Innovation ETF (ARKQ), whose top holding is Tesla.

“We think the autonomous mobility as a service market could be $10 trillion in gross sales globally by the early 2030s, and companies like Tesla or Baidu could take a cut of that,” she said.

Tesla already has a sizable presence in China. The company boasts 24 stores in mainland China, along with 114 supercharging stations and 348 regular charging stations, according to its website.

That presence is also accelerating at a rapid pace. In 2016, China imported 11,839 Tesla vehicles. That’s almost five times the amount of imports it saw just a year earlier, according to analysts at JL Warren Capital, which specialize in Chinese market research. What’s more, the researchers found that China accounted for 16% of Tesla’s global shipments in 2016, up from only 5% in the prior year.

Everyone is racing to get in on the electric vehicle and self-driving industries. Tesla is the clear early leader in both of those, and Tencent is betting that the company can become a huge force in the massive Chinese auto market, where pollution-free vehicles and ride-sharing programs are bound to see meteoric growth in the coming years.

Tesla Inc shares rose $0.45 (+0.16%) in premarket trading Wednesday. Year-to-date, TSLA has gained 29.84%, versus a 5.27% rise in the benchmark S&P 500 index during the same period.

TSLA currently has a POWR Rating of A (Strong Buy), and is ranked #2 of 24 stocks in the Auto & Vehicle Manufacturers category.

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