News that Tencent is investing US$1.78bn in Tesla is significant on two levels. First there are the benefits that two innovative companies can gain by working together and second, there’s what it sends out about China’s home-grown brands and their increasingly international outlook.
Let’s look at the details of the deal first. The new partners are two companies that have grown their brand values extremely rapidly.
This year Tencent- the number one ranked brand in 2017’s BrandZ Top 100 Most Valuable Chinese Brands – has grown it’s brand value significantly over the years to become the first brand in the BrandZ China Top 100 to surpass the US$100 billion brand value barrier, while Tesla broke into the Top 10 Cars rankings in the 2016 BrandZ Top 100 Most Valuable Global Brands.
What both brands have in common is that both are steeped in innovation, albeit in substantially different areas. Tesla has rethought the automotive business beyond petrol and diesel in a premium but increasingly affordable way. Tencent has built a comprehensive ecosystem, from social media (WeChat and QQ) to video, news and games, that has transformed both social discourse and commerce in the world’s most populous market.
Tencent and Tesla also share a similar brand personality in China – they are both perceived as adventurous, creative and playful; brands that are different and standout from their respective competitors. The difference between them is that while Tencent is a household name in China, Tesla is still niche.
The opportunities for each brand to benefit from the partnership are huge. Tesla gains access to a wide market where pollution challenges create an opening for electric cars, and both brands will benefit from sharing technology and development resources.
Increasing connectivity, for example, is a key issue for the automotive industry and help from Tencent could give Tesla an independent headstart in delivering on the promise of consumer connectivity benefits helping it escape the closed worlds of Apple and Google.
But beyond the two Ts, this deal also has much wider significance. Internally, it comes at a time when Chinese brands are increasingly developing more sophisticated premium offers, aimed at more affluent consumers. Choosing to partner with Telsa, clearly a premium brand despite its plans to launch lower cost models, shifts Tencent and its platforms up a notch.
Externally, the deal also reflects a growing confidence among Chinese brands and the knowledge that they can be global players.
Between 2006 and 2016, Chinese brand spending on overseas mergers and acquisitions rose from $16.3bn to $237.7bn. Among the overseas transactions conducted in 2016 by BrandZ Top 100 brands were: the acquisition of Kuka, a German robotics company, and Japan’s Toshiba Appliances by Midea Group, parent of the appliance brand Midea; Haier’s purchase of GE Appliances; and the acquisition of Skyscanner, a UK online travel aggregator, by Ctrip, China’s travel e-commerce giant.
This also coincides with an increasing willingness among overseas consumers, particularly younger ones, to view Chinese companies as creative and innovative.
In our BrandZ China National Image Global Survey we measured the change in perception of consumers by comparing the 2013 and 2015 results for the US, UK, India, South Africa, Russia and Brazil and we discovered that the proportion of consumers who think China is an innovator have increased from 66% to 72% in just two years.
This change is most pronounced among younger consumers. In the same study, BrandZ looked at the perceptions of Chinese brands across 18 countries and found that 40% of people, aged 18-to-35, thought of Chinese brands as creative, compared with only 31% of those aged 51-to-65.
That’s an impression that this deal should reinforce with two of the world’s most innovative brands teaming up to create a new future for consumers on the road and online.
Source: Kantar Millward Brown