Tesla's August car sales in China were higher than in any other month so far this year, but the company is still losing ground to domestic brands in the world’s largest and fastest-growing car market.
Its share of the so-called New Energy Vehicles market—which includes plug-in hybrids and hydrogen fuel cell cars alongside pure electric vehicles—has dropped to 6.5% in the first seven months of this year. This is down from almost 9% a year earlier, according to a report by Shanghai consultancy Automobility cited in the Financial Times .
In a social media post, Musk called the report “silly,” but did not directly dispute its findings.
“Our Shanghai factory is running at max capacity,” he wrote.
While the latest weekly figures coming out of China indicate Tesla may be on track for a record quarter in China, this is only after a disappointing first half during which sales declined.
On Monday, fresh data from the China Passenger Car Association (CPCA) indicated that Shanghai exported around 23,250 cars out of 86,700 made in August, implying domestic sales of nearly 63,500.
This would make August the best month so far this year for Tesla, but Chinese EV publication CnEVPost calculated this still means a year-on-year drop of 1.9% and flat domestic sales of 388,000 in total through the first eight months.
Musk did not respond to a Fortune request for comment to clarify his remarks.
Shift away from EVs toward plug-in hybrids
China’s domestic NEV market is expected to surpass 1 million vehicles in August , the first time a single month has crossed that threshold and more than the previous monthly record of nearly 950,000 in December of last year. According to preliminary data from the CPCA, this amounts to growth of 42% over the previous year’s August total. Over the cumulative first eight months, NEV sales hit 6 million for a 35% gain.
However, demand has shifted away from pure EVs. For example, Tesla’s archrival BYD reported at the start of this month that the bulk of its volume growth both in August and year to date came from plug-in hybrids .
With nothing to offer in this category, Tesla had to slash production in April to reduce pressure on inventories of unsold vehicles. Sales have now begun to rebound after it launched 0% financing, but growth so far this year has been flat overall.
Tesla’s business is largely based on exports from Shanghai. More than half of all Tesla cars built globally are manufactured in Shanghai, with about a third of its volume destined for export. And according to the company’s quarterly investor deck, Shanghai can build more than 950,000 units of the Model 3 and Model Y combined, or a monthly volume of roughly 80,000 vehicles.
Unfortunately for Tesla, sales could now suffer collateral damage from a backlash against Chinese EV manufacturers, who have been pushing into overseas markets amid a cooldown in economic growth and a brutal price war that Musk himself helped launch.
Recently, the EU slapped an extra 9% import duty on Musk’s made-in-China cars as part of a wider crackdown that hit other manufacturers even more steeply. Every Model 3 sold in the EU single market is imported from Shanghai. Canada has also imposed an extra tariff on Chinese EVs that effectively makes Tesla’s export from Shanghai prohibitively expensive.
This story was originally featured on Fortune.com
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