Elon Musk’s China dream has become a reality ahead of schedule. His company Tesla now claims a fifth of all electric car sales there, selling more than 21,000 vehicles in November. The US group delivered its first locally-produced Model 3 just over a year ago. Growing scale will reduce costs. But it increases the risk of regulatory intervention.

Relations are cordial for the moment. “China rocks,” according to Mr Musk, who has been praised in state media. Setting up in China has saved Tesla shipping costs and tariff uncertainty.

The group’s pricing strategy is expansionary. In China, a basic, locally-made Model 3 sedan costs about $37,000 after subsidies, about a third less than one shipped from the US. That makes it an affordable alternative to European petrol models.

Sales have surged. They should get another fillip when Tesla puts the Model Y on sale this year for $52,000, priced at the bottom end for a luxury electric SUV. State support delivers another boost. Beijing has extended EV subsidies to 2022.

But Tesla may be getting too successful. That could attract critical attention from party bosses and regulators, who are clamping down on homegrown tech giants. Measures to protect local companies from US sanctions are also in the works. Teslas are assembled in Shanghai. But they use US software and other components.

China’s state-owned banks have boosted support for local EV makers, extending billions in credit lines to rivals including Alibaba-backed Xpeng and Nio. That easy financing has helped fledglings grow at breakneck speed. Shares in Nio, which just two years ago had little to set it apart from more than 400 local EV makers, are up more than 1,500 per cent in the past year, double Tesla’s increase. US-listed shares in Nio are capitalised at $97bn, more than General Motors.

Tesla’s Chinese sales should continue to boom. But Asia investors reconciled to the sky-high multiples of the EV sector should hedge a different risk: the political kind. Investing in Chinese manufacturers is the best way to do this.

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