Sentiment surrounding the electric vehicle (EV) industry hasn't exactly been inspiring of late. Sales growth has slowed in the U.S., highly subsidized yet well-built and well-received Chinese EVs are attempting to break into markets around the world, and charging infrastructure in many places still leaves much to be desired. Tesla (TSLA +3.01%) has had its fair share of bad news, but registration data for July brought a bit of good news for its shareholders.
EVs drive higher
The good news for the broader industry is that new EV registrations spiked 18% in July compared to the prior year, partially thanks to Tesla's Cybertruck, according to U.S. data from S&P Global Mobility. Further, electric vehicles' share of the U.S. light-vehicle market rose to 8.5% from the prior year's 7.6%. The 18% gain in July was significantly larger than the overall increase in the January-to-July period, when EV registrations grew by 8.7% compared to the prior year.
In Q2, Tesla's sales fell for the second consecutive quarter. It was the first time in company history that year-over-year sales fell two quarters in a row. Tesla's sales in the second quarter declined 5% year over year, and in the first quarter, sales slid 8.5%. However, its registrations in July suggest the third quarter is off to a better start.
Tesla broke its five-month losing streak in July as its registrations increased by a modest 1.2% year over year. The Cybertruck was responsible for a chunk of that gain, and it was an impressive feat when you consider that Tesla delivered 5,175 Cybertrucks while all other electric pickups combined for 5,546.
Don't let that modest increase cause you to forget how remarkable Tesla's dominance in the domestic EV market still is. Just glance at this graph of the top 10 brands by July registrations for a reminder.
Graphic by author. Data source: S&P Global Mobility
(We can use registration data as a proxy for sales numbers as Tesla doesn't break out its U.S. deliveries monthly.)
What's the downside?
July's 18% increase was a welcome jump, but it came with a caveat. Right now, EVs aren't selling at their full manufacturer's suggested retail prices -- manufacturers are pushing significant incentives to bring their prices down to the levels of gasoline-powered vehicles.
"If the incentives were pulled off, I think sales would drop tremendously," said Tom Libby, an analyst at S&P Global Mobility, according to Automotive News.
A more specific downside for Tesla was that registrations for its Model 3 sedan dropped by 31% in July. That's been the trend all year after the base Model 3 lost federal EV tax incentives on Jan. 1. That change came due to a new regulation that says cars with battery components sourced from "foreign entities of concern" such as China are no longer eligible for federal tax credits.
NASDAQ: TSLA
Key Data Points
What it all means
Tesla seems to be starting the third quarter in slightly better shape. However, it's also true that competition in the EV world is growing, and another wave of competing vehicles hitting the roads won't make things any easier for Tesla as its models continue to age. However, Tesla will be fine. Its investment thesis hasn't changed much because sales dropped for two quarters in a row, and investors can sleep a little better now when it comes to sales and registration data.
