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What happened

Tesla‘s (NASDAQ: TSLA) biggest factory and biggest market is in China. Its Shanghai plant is also thought to be its most profitable. News from its biggest Chinese competitor has Tesla shares surging today. As of 1:35 p.m. ET, Tesla shares had jumped 6.3%.

So what

Today’s move has helped Tesla shares rise almost 10% over the past week. The jump comes after China-based BYD reported record vehicle deliveries and profits that tripled in the first half of the year.

Tesla doesn’t just do business in China, of course. The company has been prescient enough to expand in the U.S. and European markets as well. But its Shanghai plant can produce more than 1 million units annually and it’s thought to be the most profitable. So when Warren Buffett-backed BYD just reported it tripled its profit year over year to $1.5 billion in the first half of 2023, it reinforces a trend of strong electric vehicle (EV) sales in China that should continue to benefit Tesla.

Now what

Investors have been concerned about Tesla cutting prices for Chinese consumers. The pricing strategy has already impacted profit margins. The big question is whether that’s to maintain market share amid growing competition or to stoke demand as growth in the Chinese economy has slowed.

BYD’s report shows that demand continues to grow in China and that’s the most important factor. BYD sold more than 600,000 battery-only EVs in the first half of the year, and 90% were to domestic customers.

Tesla reported 46% growth in its overall automotive revenue in the second quarter. The company doesn’t break out regional sales, but the fact that BYD had impressive sales means the market remains strong in China. Investors are signaling their approval and hopes for continued growth by boosting Tesla shares today.

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Howard Smith has positions in BYD and Tesla. The Motley Fool has positions in and recommends BYD and Tesla. The Motley Fool has a disclosure policy.

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