Ahead of Tesla's (NASDAQ:TSLA) third-quarter earnings release on November 3, investors will hone in on hot topics like revenue, guidance, and Model X. But there's one critical storyline beyond these key metrics investors shouldn't overlook: Tesla's China market. It's very possible that Tesla's third-quarter release could mark a return for the company to a positive China narrative.

Model S. Image source: Tesla Motors.

The China turnaround
"China was certainly a lot weaker than expected," Tesla Motors CEO Elon Musk said on stage during an interview in Detroit in January. The stock proceeded to fall about 7% during the trading day following the interview.

This was a huge storyline shift for Tesla's sentiment toward China. Just a year before this interview, Musk told Bloomberg during a phone interview that China sales could reach an annualized rate that exceeds U.S. volume by the end of next year. Musk, though, was careful to emphasize this was "a big maybe."

With Tesla's expectations for China panning out to be far too optimistic, investors had good reason to be surprised by the sudden news that the market wasn't working out as planned.

But there's been little mention of Tesla's slow-but-sure rebound in the market, which is now beginning to shape up into a meaningful catalyst. In March, Tesla said it was seeing an "uptick in our sales in China." And the positive sentiment continued into its second-quarter shareholder letter.

"[I]n Asia, Q2 Model S orders nearly doubled from last quarter, helped by the initial success of our revised China strategy," the company said.  "Given this improvement, we are increasing our investments in China by planning to grow this year from one to five retail stores located in high foot traffic areas."

Its investments in the market have also included a significant expansion of its charging stations, with around 80 Supercharger locations combined in China and Hong Kong and hundreds of its Destination Charger locations. And this week, Musk reiterated that the company wants to begin building cars in China within a few years. 

Tesla charging network in China. Red icons indicate Superchargers. Gray icons indicate Destination Chargers. Image source: Tesla Motors.

The opportunity
Even after a worse-than-expected initial ramp in sales in China, a doubling in orders for Model S in Asia between Q1 and Q2 seems to have the company bullish on the the long-term outlook.

"Despite initial challenges in China, we plan to continue to invest in our infrastructure there as we believe that China could be one of our largest markets within a few years," it said in its 10Q filing for the third quarter.

Based on data of Model S registrations in China, the company has delivered about 3,000 Model S this year. But sales have been ramping sharply, with nearly 1,400 of these deliveries occurring in the third quarter alone. If this ramp in China Model S deliveries continues, Tesla's deliveries in the market during Q4 could reach several thousand. At these levels, the market would represent as much as 15% to 20% of Tesla's sales.

Looking out longer term, Musk is as bullish as ever on the China market. He predicts more than half of newly produced vehicles in the world will be battery-powered by 2030 and China will represent the largest market for these vehicles, the CEO said this week at a forum at Tsinghua University Beijing.

Given the rising importance of the Chinese market for Tesla, investors should pay particular attention to comments from management regarding the market when the company reports third-quarter results in a few weeks.