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Tesla sales cratered in China, but investors don’t seem to mind

<i>FEATURECHINA/Newscom/Sipa</i><br/>Tesla sales dropped sharply in China
Tesla sales dropped sharply in China

By Chris Isidore, CNN Business

Tesla sales dropped sharply in China, according to a trade group report, suggesting it is losing ground in the world’s largest market for both traditional and electric vehicles.

The China Passenger Car Association reported that Tesla’s sales in China fell to 8,621 cars in July, down nearly 70% from June. But the export of cars built at Tesla’s Shanghai plant jumped to 24,347 for July, compared with 5,017 in June. That means total sales of Chinese-built Teslas fell less than 1% overall.

Critics say the steep decline of sales to Chinese consumers is yet another sign of the growing problems the company faces in the country. Tesla is contending with increased competition from Chinese EV makers as well as a run of bad publicity, including a recall of virtually all of the cars that have been built in Shanghai. The company also faced protests by Telsa owners at this year’s Shanghai auto show over poor car quality and various safety concerns flagged by Chinese regulators.

Teslas accounted for just 3.9% of July sales of battery electric vehicles in China, down from 12.6% in June, said analyst Gordon Johnson, who has been among the harshest critics of the company. He said that decline shows Tesla is facing fiercer competition from local EV startups.

“Overall, it now seems clear that Tesla has overbuilt Chinese capacity when compared to domestic demand, which will result in further price cuts and margin pressure,” Johnson said. “Given China is supposed to be Tesla’s ‘growth market,’ these numbers should concern any Tesla bull.”

But Tesla investors seemed unfazed by the sales dip, as shares declined less than 1% Tuesday. That’s in sharp contrast to the steeper drops in the stock price following similar weak reports from the CPCA in April and May.

Last month investors saw that declining numbers in China didn’t stop Tesla from reporting better than expected global sales for the full quarter, said Dan Ives, a tech analyst for Wedbush Securities and a Tesla bull.

“I think investors are becoming less sensitive to the month-to-month China numbers,” he said. “Ultimately, it’s not been the best indicator of Tesla’s success, as we saw in the second quarter.”

But Ives said that if Tesla’s sales in China don’t improve, the company could face serious problems going forward.

“Right now we believe that China will be 40% of deliveries for Tesla by next year,” he said. “So selling only 8,000 in a month, even though it’s a volatile number, it doesn’t give the bulls the warm and fuzzies.”

Unlike other automakers, Tesla does not breakdown sales by market and only reports sales quarterly, not monthly. So the numbers from the CPCA are not confirmed. Tesla did not respond to a request for comment Tuesday.

— Laura He contributed to this report.

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