A bit of good news for Tesla

The sentiment surrounding the electric vehicle (EV) industry hasn’t exactly been inspiring lately. Sales growth has slowed in the US, heavily subsidized but well-built and well-received Chinese electric vehicles are trying to break into markets around the world, and charging infrastructure in many places still leaves a lot to be desired. adze (TSLA -2.33%) had its fair share of bad news, but its July filings brought a little good news for its shareholders.

EVs drive higher

The good news for the broader industry is that new electric vehicle registrations rose 18% in July from a year earlier, thanks in part to Tesla’s Cybertruck, according to US data from S&P Global Mobility. In addition, electric vehicles’ share of the US light vehicle market increased to 8.5% from 7.6% the previous year. July’s 18 percent increase was significantly higher than the overall increase from January to July, when electric vehicle registrations rose 8.7 percent from a year earlier.

In Q2, Tesla sales fell for the second quarter in a row. It was the first time in the company’s history that year-over-year sales declined two quarters in a row. Tesla’s second-quarter sales were down 5% year-over-year, and in the first quarter, sales were down 8.5%. However, its July records suggest that the third quarter got off to a better start.

Tesla snapped its five-month losing streak in July as its registrations rose a modest 1.2% year-over-year. The Cybertruck was responsible for a chunk of that gain, and it was an impressive feat considering Tesla delivered 5,175 Cybertrucks, while all other electric pickups combined for 5,546.

Don’t let this modest growth make you forget how remarkable Tesla’s dominance of the domestic electric vehicle market is. Take a look at this chart of the top 10 brands through July entries for a reminder.

Chart by author. Data source: S&P Global Mobility

(We can use registration data as a proxy for sales numbers because Tesla doesn’t make monthly US deliveries.)

What is the downside?

July’s 18 percent increase was a welcome jump, but it came with a caveat. Right now, electric vehicles don’t sell at manufacturer’s suggested retail prices—manufacturers make significant incentives to bring their prices down to gasoline vehicle levels.

“If the incentives were withdrawn, I think sales would drop tremendously,” said Tom Libby, an analyst at S&P Global Mobility, according to Auto News.

A more specific downside for Tesla was that registrations for its Model 3 sedan fell 31% in July. That’s been the trend all year after the base Model 3 lost federal tax incentives for electric vehicles on Jan. 1. That change came because of a new regulation that says cars with battery components sourced from “foreign entities of interest” such as China are no longer eligible. for federal tax credits.

What does it all mean?

Tesla appears to be starting the third quarter in somewhat better shape. However, it’s also true that competition in the electric vehicle world is increasing, 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 as sales have fallen for two quarters in a row, and investors can sleep a little better now when it comes to sales and registration data.