The global market for electric cars has dramatically expanded in recent years as governments seek to reduce carbon emissions and consumer demand increases for environmentally friendly vehicles. That may be changing dramatically, at least in the short term. Electric cars saw their first monthly global sales decline ever in July, per the latest data available, as the Chinese government cut subsidies in the world's largest EV market and as China consumers slowed spending due to a softening economy, according to a Sanford C. Bernstein report published on Tuesday, as outlined by Bloomberg.

Perhaps most surprising in this bad news is that Tesla Inc. (TSLA), which has been plagued by management controversies and operating problems, still leads the passenger EV market in global sales, according to the latest data. This as CEO Elon Musk has persuaded the Chinese government to give the carmaker an exemption from paying a 10% tax, giving the company a major edge.

Growth Momentum Halted

In July, global monthly EV sales dipped 14% to approximately 128,000, dragged down by a decline in China and North America. In Europe, EV sales increased. Weakness can be largely attributed to Beijing’s decision to cut subsidies for individual purchases of new-energy vehicles to incentivize product innovation. 

Despite the plunge, Bernstein remains optimistic. “Unsurprisingly the growth momentum halted in July amid subsidy cuts,” read the Bernstein report, per Bloomberg. “Despite expected short-term weakness in 2H19, we continue to be positive on long-term EV demand.” Bernstein analysts expect full-year EV sales to jump by 23% to 48% to between 2.4 million and 2.9 million units in 2019. Their bullishness reflects the broader sentiment in the industry, wherein both new startups and traditional automakers are sharply expanding production of EVs. While EV sales still only represent a slim portion of the total market, the segment is expected to continue to steal share away from traditional gas-fueled vehicles. 

Tesla's 10% China Tax Break

At the head of the growing EV market is market pioneer Tesla, whose founder and CEO has positioned himself to win despite a re-escalation of the U.S.-China trade war. During a visit to China at the end of August, Musk persuaded Beijing to give Tesla an exemption on a 10% purchase tax on all vehicles it sells in the country, per another Bloomberg report. The decision helps to increase Tesla's competitive advantage over its growing mass of rivals in the passenger EV market, where it is already a clear leader. The company sold roughly 20,000 units in July, followed by BYD Co., the Chinese automaker backed by billionaire Warren Buffett. It had 16,000 in July sales followed by 9,000 for BMW.

Looking Ahead

Tesla's leadership demonstrates that it's still in a strong market position despite recent stumbles, which have pushed down the stock by more than 30% this year. Bears have cited a laundry list of concerns about Tesla, including missed production targets, Model 3 disappointments, its cash burn, and a series of scandals surrounding its factories and the behavior of Tesla's outspoken CEO. Amid all the uncertainty, the decision by Chinese officials to favor the company serves as a major win for Tesla.