Despite experiencing some significant hurdles over the past year with its Shanghai factory, Tesla's (TSLA +1.11%) vehicle production in China has found its stride.
The company sold 83,135 China-made vehicles in wholesale in September, according to the latest data from the China Passenger Car Association.
That's a record for Tesla and an impressive number to be sure, but Tesla is still facing stiff competition from China-based electric vehicle companies, including EV giant BYD (BYDDY +8.06%). The good news for Tesla investors is that the company doesn't need to dominate market share to benefit from China's growing EV market.
Image source: Tesla.
Tesla's Shanghai factory is firing on all cylinders
Investors will likely remember all the speed bumps Tesla's Shanghai factory went through in recent memory, including closing for COVID-related lockdowns and a temporary shutdown so that Tesla could upgrade the factory. But it appears that those temporary setbacks are now in the past.
Tesla's September sales in China beat the company's previous record (set back in June) of 78,906. The EV maker's sales during the month were also up 8% from its August figures.
Tesla's planned factory upgrade back in July aimed to bring the company's weekly output to 22,000 vehicles per week, from the previous 17,000.
While the production increase certainly helped Tesla sell more vehicles in China last month, its vehicle sales fell short of BYD's sales during the month -- and it could have a hard time overtaking the Chinese automaker.
NASDAQ: TSLA
Key Data Points
The company still faces stiff competition in the Chinese market
Tesla's latest Chinese sales figure shows just how well the company's bet to sell EVs in the country has gone.
But Tesla was outpaced by BYD's wholesale EV sales in China, which reached 94,941 last month, up nearly 162% from Sept. 2021.
BYD is already a leader in China's EV market, with an estimated 28% market share in the first five months of 2022 -- compared to Tesla's nearly 7% market share.
Closing that large gap could be very difficult for Tesla, especially considering that BYD has recently focused its attention on building EV models (and ended combustion engine vehicle production earlier this year). Additionally, BYD manufactures its own EV batteries, which could give it an advantage over Tesla in vehicle production.
One thing Tesla has going for it
While gaining more market share could be an uphill battle, Tesla investors should remember that the company still enjoys an enviable operating margin of 16% -- compared to BYD's 3%.
Image source: YCharts.
Tesla doesn't need to constantly outsell BYD and other competitors in China. It just needs to ensure that it can continue producing cars at a healthy clip, maintain its market share, and keep its strong margins.
As the Chinese EV market continues to gain more competitors and homegrown automakers expand their footprint, it'll be even more important for Tesla to efficiently earn money from its vehicle sales. If it can do that, Tesla will be able to build on its success in China.
