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A week before Tesla is expected to release third-quarter delivery and production numbers, an analyst is bullish on the company’s progress in China.

The back story. Tesla (ticker: TSLA) is set to report on deliveries and production next week, which will give Wall Street a better idea of what to expect in its forthcoming earnings report. Wall Street’s consensus estimate is for 98,000 new-car deliveries.

The company expects to ship 360,000 to 400,000 cars for the full year, compared with estimates calling for 358,000.

What's new.PiperJaffray analyst Alexander Potter thinks auto-insurance registration data in China could shine a light on Tesla’s prospects in the country.

“After examining data covering China’s automotive insurance registrations, we have higher conviction that Overweight-rated TSLA can succeed in China,” Potter wrote. “Teslas are among the only electric vehicles (EVs) that consumers actually want to buy—even in a market like China, where EV models are commonplace.”

Insurance-registration data suggests Tesla’s China deliveries were up 175% year over year in July and August, according to Potter.

“Tesla’s deliveries to real, actual people are still rising at a triple-digit pace, despite being hamstrung by import duties, a flagging auto market, and a historical inability to tap EV subsidies (due to a lack of local manufacturing),” he noted.

Tesla stock was up 6.1% to $242.56 Thursday while the S&P 500 index was down 0.2%.

Looking ahead. Potter has an Overweight rating and a $386 price target.

He conceded that insurance registrations are an imperfect measure that may not correlate perfectly to reported deliveries in a given period. Still, he thinks it can be used to determine global trends.

“Bears will likely argue that these are low-margin deliveries (because of high logistics costs and unfavorable mix), and in this regard, we lack a near-term rebuttal,” he wrote.

In fact, the lower-priced Model 3 is driving most of the growth, according to Potter, while registrations of its higher-end Model S and Model X declined 25% year over year in July and August.

“But we are unconcerned, because Tesla’s Shanghai facility should be operational in the next few months/quarters, and once it opens, margins should rise,” Potter wrote.

Write to Connor Smith at connor.smith@barrons.com