China's car sales are surging as it recovers from the pandemic, and that's great news for Tesla

• China is growing as a profit center for Tesla, and the country reported a rebound in car sales in July on Tuesday.
• It's good news for the world's largest auto market, and potentially even better news for Tesla.
• However, electric vehicles are still under pressure following the cutting of a government subsidy for buyers.

Car sales are booming in China as the coronavirus pandemic fades in the country, which could be good news for Tesla in an increasingly important market.

The China Association of Automobile Manufacturers, an industry group that provides monthly production and sales statistics, said passenger-car sales jumped 8.5% in July compared to last year while overall sales rose 16.4%. The rebound follows a 18.4% slump that began in January as the virus swamped the industry worldwide.

"The trend is good after recovering momentum in the second quarter of the year," the association said in a statement.

It's good news for the world's largest auto market, and perhaps even better news for Tesla, which has invested heavily in expanding its presence in the country. The automaker reported another increase in revenues from China in July, even as US sales slumped. For the second quarter, China was responsible for 23% of the company's total revenue — its highest share ever.

Electric vehicles have seen a slight slump in China since Beijing slashed a lucrative subsidy for potential buyers, which had helped Tesla's initial growth in the country as it completes its Shanghai Gigafactory. Sales of hybrid and pure-electric vehicles rebounded to 98,000 units in July after slumping 32.8% during the first seven months of the year, the Associated Press reports.

At the same time, several domestic competitors are slowly beginning to encroach. Nio reported a surge in monthly deliveries in July — now up to over 3,500 — and Xpeng filed for a public offering on the New York Stock Exchange last week.

"China remains the linchpin of growth going forward," Daniel Ives, an analyst at Wedbush, told clients following Tesla's second-quarter results.

Ives said Wedbush continues to "believe EV demand in China is starting to accelerate" with Tesla competing against domestic and international competitors, and called the upcoming Gigafactory "the linchpin of success" that "remains the prize that Musk and Tesla are laser focused on capturing."