Autos

Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

What keeps a furnace going: the amount of heat it produces or the amount of fuel it has available? It's the latter, of course.

Which is why Tesla Inc.'s stock jumped as much as 3.6 percent on Tuesday after it emerged that Chinese Internet giant Tencent Holdings Ltd. had taken a 5 percent stake in Elon Musk's electric-vehicle and renewable-energy company. The stock has come off a little since, but Tesla is still less than 6 percent away from its all-time intraday peak.

Tencent's appearance raises all sorts of potentially bullish scenarios, ranging from helping Tesla sell more cars in China to partnerships in vehicle technology.

But, really, it's just about the cash.

As I've written about here and here, Tesla's critical issue is ensuring it raises enough capital to offset its considerable cash burn and deliver on its ambitious (to say the least) growth plans. That's why it just raised more money with another equity issuance -- its seventh by Bloomberg's count -- and convertible stock sale (I strongly suspect it won't be the last). An increasing share count and a near-peak share price have pushed Tesla's market capitalization within striking distance of that of Ford Motor Co.

As a reminder, Ford sold 6.65 million vehicles last year versus less than 80,000 for Tesla.

In The Rearview
Tesla's market cap is roughly $1 billion below Ford's
Source: Bloomberg

Perhaps more striking is that fact that, in terms of enterprise value, Tesla has already left Detroit in the dust:

Overtaken
Adjusted for net debt/cash, Tesla's valuation is already higher than Ford's and GM's
Source: Bloomberg
Note: Enterprise values for Ford and GM reflect their core automotive operations.

(Take a moment to just let that chart sink in.)

Tencent's arrival on the scene isn't a game-changer, but Ford and General Motors Co. (along with the world's oil companies) should be unnerved anyway. Because the roster of investors potentially willing to fund Tesla despite its red flags just gained another convert.

And what a convert: Tencent's market cap of $275 billion is almost double that of Tesla, Ford and GM combined. It is also a serial deal maker, having announced 50 deals worth almost $20 billion in just the past 12 months, according to data compiled by Bloomberg.

And the targets are quite an eclectic bunch, ranging from Indian e-commerce platform Flipkart Online Services Pvt Ltd. to bike-sharing start-up Beijing Mobike Technology Co. Regarding the latter, this piece from fellow Gadfly Tim Culpan gives you a sense of how comfortable Tencent is investing in long-term value propositions (to borrow a banker's euphemism).

In contrast, GM's stock jumped even more than Tesla's on Tuesday morning -- but mainly because David Einhorn was calling on the company to issue a funky second class of shares to boost its abysmal price/earnings multiple. That is a very different situation. 

Despite the fuel expended already on Tesla's wild ride, supplies haven't dried up yet.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Enterprise value is market cap plus net debt, preferreds and minorities. In the case of Ford and GM, the calculation is a bit more complicated because of their large financing businesses. In general, these are kept separate when calculating enterprise value, so as to measure just the core automotive business. That is the metric used here.

To contact the author of this story:
Liam Denning in New York at ldenning1@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net