Tesla Is Having a Strong Run in China. Analysts Weigh In on Its Rising Market Share.

Last week, founder Elon Musk said at a shareholders meeting that the company’s factory in Shanghai is now producing more vehicles than its flagship plant in Fremont, California.

The boom has had observers wondering if the good times will last, and how Beijing will react as a foreign company wrestles its way upward in China’s bustling EV market.

“Tesla helped China to accelerate the national strategy for electrification. They did this by legitimizing retail consumer purchase consideration of electric vehicles—they made it cool to own an EV,” said Bill Russo, founder and CEO of Shanghai-based Automobility, a strategy and investment advisory firm.

“This sparked the market for everyone. They also set the market for EV pricing and helped to build the EV component supply chain. As long as they continue to help pave the path for the electrification of the industry, their future remains bright,” he told Barron’s.

While China’s overall car sales remain anemic, new-energy vehicle sales hit an all-time high of 357,000 units last month, data from the China Association of Automobile Manufacturers show. This comes despite a continuing semiconductor chip shortage, and sporadic production shutdowns amid China’s worst electricity crunch in decades.

Strong September sales for Tesla were expected, as it ships the bulk of its China production to Europe early each quarter and saves domestic allocation for the end of the quarter.

“Tesla is a major force and leader to be reckoned with in China’s EV space for the foreseeable future, and no other company has utilized EV production capacity for export as well as Tesla has done,” said Lei Xing, former chief editor of Beijing-based China Auto Review.

“Having said that, competition is eating into its market share and that competition is increasing by the day. The wild card will be what happens when Giga Berlin/Texas come online and there is less of a need for export out of Shanghai. Will there be sustained demand domestically for production to remain at a high level?” he said.

The Berlin factory refers to Tesla’s first manufacturing location in Europe, which Musk said would begin rollouts next month. Meanwhile, the company is building new plants in Texas and will eventually move its headquarters there.

Other analysts weren’t as impressed by Tesla’s recent wave of good news.

“Meh,” said Anne Stevenson-Yang, co-founder of China-focused J Capital Research. “They had a new model and a backlog. I am not optimistic about Tesla China, for a lot of reasons, but the simplest is that Chinese localities obviously hate them,” she told Barron’s.

“The Shanghai government has called them out for failing to achieve their investment and tax commitment. It’s not selling as well as domestic models. All over the internet, people are advocating kicking them out,” she said.

Tesla did not respond to Barron’s request for comment.

Indeed, domestic companies are thriving, particularly industry leader

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(1211: Hong Kong), which sold more units than Tesla if plug-in hybrids are included. With 357,000 new-energy vehicles sold overall in China in September, Tesla captured a roughly 15% market share.

And the bullish few months for the company in China come after a worrisome stretch earlier this year. At a Shanghai auto show in April, an angry protester climbed atop a Tesla and began shouting about a crash in February when her father was driving a Tesla Model 3.

Wearing a T-shirt with the Tesla logo and the phrases, “Brakes Failed” and “Invisible Killer,” the protester screamed that the vehicle was to blame for the incident before being dragged away by security guards. Under pressure from authorities, Tesla released crash data to the family and maintains that the collision was caused by user error.

This was only the most visible of several similar disputes regarding alleged vehicle malfunction, but the video of the woman’s protest went viral on social media and stirred up widespread anti-Tesla vitriol. It also turned authorities’ sights on Tesla’s data and safety.

“The government obviously wants domestic brands to succeed, but that is not going to come at the expense of Tesla,” Xing said. “Look at how Elon Musk is kissing up over the past couple of appearances at major industry conferences. As long as you follow the rules in place—cybersecurity, data requirements, for example—you will be fine,” he said.

Alan Kang, senior market analyst at Shanghai-based LMC Automotive agreed, telling Barron’s that “Tesla’s business will not be affected as long as it follows the laws and rules of China’s government.”