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

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Tesla

is having an impressive run in the world’s largest auto market.

The California company’s sales in China leapt nearly 50% in August and another 27% last month, data from China’s Passenger Car Association show. Moreover, unlike previous months, September’s record 56,006 Tesla (TSLA) sales in China were nearly all domestic shipments.

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…