re: Tesla Sales Fall to Zero in Hong Kong After Tax Break Is Slashed

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BlackHelicopterPilot

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Musk is a con man.

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Trump knows how to work the government to get good deals too. Strange how we never have a thread about that.

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Tesla Inc.’s TSLA +0.64% sales in Hong Kong came to a standstill after authorities slashed a tax break for electric vehicles on April 1, demonstrating how sensitive the company’s performance can be to government incentive programs.

Not a single newly purchased Tesla model was registered in Hong Kong in April, according to official data from the city’s Transportation Department analyzed by The Wall Street Journal.

In March, shortly after the tax change was announced and ahead of the April 1 deadline, 2,939 Tesla vehicles were registered there—almost twice as many as in the last six months of 2016.

The end of the tax exemption “has really put the brakes on electric-vehicle adoption in Hong Kong,” said Mark Webb-Johnson, a founder of Charged Hong Kong, a group that promotes electric vehicles.

As a result of the new policy, the cost of a basic Tesla Model S four-door car in Hong Kong?has effectively risen to around $130,000 from less than $75,000.

Hong Kong’s decision is effective through March 2018, and the government has said it would review the policy before then.


Tesla doesn’t break out vehicle sales by country or region and declined to discuss specifics in Hong Kong. But it acknowledged in a statement a slowdown, calling it “expected” after the tax change and a “short-term” challenge.

“Tesla welcomes government policies that support our mission and make it easier for more people to buy electric vehicles; however, our business does not rely on it,” Tesla said. The company said its sales in China, where it faces large tariffs, has risen without government incentives. “At the end of the day, when people love something, they buy it,” it said.

Tesla last week said it sold more than 22,000 cars world-wide—either Model S sedans or Model X sport-utility vehicles—in the second quarter, up 53% from a year earlier but short of analyst estimates and the 25,000 it sold in the first three months of 2017. The company said a battery-pack production shortfall affected deliveries.

Tesla’s stock dropped sharply in the wake of last week’s results, which fueled concerns among analysts and investors that demand for Tesla’s current two models is weakening ahead of the launch of the Model 3, a $35,000 sedan. Chief Executive Elon Musk said on Twitter over the weekend that production of the Model 3 had started.

Buyers of Teslas and other electric vehicles in many markets benefit from government incentives. Tesla notes on its website that U.S. purchasers are eligible for a $7,500 federal income-tax credit, plus additional incentives in some states.

Norway has exempted electric vehicles from a range of charges, including import taxes, a 25% value-added tax and the purchase taxes that apply to? gas-powered vehicles, according to Tesla. Those policies have helped make Norway, with a population of around 5 million, one of Tesla’s biggest markets, ranking second in revenue in 2015 and third last year after the U.S. and China, according to the company.

?Incentives vary? elsewhere in Europe. Germany?exempts electric vehicles from circulation taxes for a decade, while the U.K. exempts such vehicles from an annual circulation tax and full electric cars are exempt from a company car tax, according to the European Automobile Manufacturers’ Association.

Tesla warns investors in securities filings that such incentives can change and says that “could have some impact on demand for our products and services.”

Last year in Denmark, an incentive program expired and was replaced with a less generous one.?New car-registrations for all-electric vehicles of all brands fell 70% in 2016?in the country to 1,373 vehicles, while across the European Union the number grew by 7% to 63,278 vehicles. In the first quarter of this year, only 48 all-electric vehicles were registered in Denmark.

The incentive policies can be controversial. During the Obama administration, Tesla received loans to encourage electric-vehicle development. Though it ultimately paid them back, critics have cited that assistance in arguing Tesla unfairly benefited from U.S. government help.

Mr. Musk has rejected such contentions, saying during an analyst call in May the notion that his company has survived because of government subsidies and tax credits “drives me crazy.” Tesla says on balance, industry incentive structures still benefit traditional, combustion-engine vehicles.

Hong Kong, though relatively small, is a significant outpost of luxury-car buyers and trend setters. Its government had long waived its vehicle-registration tax for newly purchased electric automobiles, adding to the attractiveness of Tesla’s cars.

Citing increased congestion of privately owned vehicles on its streets, the government said in February that it would be changing the policy so the tax would be waived only on the first 97,500 Hong Kong dollars (US$12,500) of an electric car’s purchase price for individuals.

The Hong Kong registrations data don’t show actual sales figures but are a close proxy because new cars in Hong Kong must be registered to be driven.

In May, only five privately owned electric vehicles were registered, according to documents provided to district council members and viewed by the Journal.

Tesla said it continues to sell vehicles in Hong Kong each quarter and expects “the Hong Kong market will continue to be very strong over the long-term because it’s clear that the people of Hong Kong love our cars.”

The reversal in Hong Kong comes as Tesla is planning to expand in mainland China, the world’s largest new-car market. Last month, Tesla said it was exploring with the Shanghai city government the possibility of opening a manufacturing facility in China. China charges a 25% duty on all imported cars.

Dave Sullivan, an analyst for the consulting firm AutoPacific Inc., said the Hong Kong decline could foreshadow challenges for Tesla as a luxury brand in China.

“Hong Kong is the fashionable China,” he said. “It’s not exactly painting a glowing picture for the future of Tesla in China.”

Write to Tim Higgins at Tim.Higgins@WSJ.com

Appeared in the July 10, 2017, print edition as 'Tesla Grinds to Halt in Hong Kong.'

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