Tesla awaits damage from loss of tax waiver in Hong Kong
A price jump is expected to hit sales of billionaire Elon Musk's luxury electric cars this year, threatening its dominance of the local market
Call it bad timing. Tesla opened Hong Kong’s first delivery center for its Model X last month just before the loss of tax waivers caused the price of the electric car to double. Now the focus is on how bad will the damage be to sales?
The trouble started for Tesla when Financial Secretary Paul Chan last week cut tax waivers for electric cars in his first budget. That cranked up the price of a Tesla Model X75D to about HK$1.51 million (US$193,000), or about 77% higher than the previous HK$850,000.
That’s put a severe dent in sales growth expectations in Hong Kong, which Tesla chief executive Elon Musk once called the “beacon city for electric vehicles.”
Last year, Tesla sold about 2,800 cars in Hong Kong, according to Lau Sei-keung, executive director of Dah Chong Hong, Hong Kong’s biggest car dealer of Japanese brands such as Toyota. That accounted for more than 90% of the electric car market in the city, he said.
In just three years, Tesla came to dominate the electric car market in Hong Kong, with sales of a total 7,400 vehicles by the end of 2016.
As Tesla sales surged, the rest of the car marketing industry saw a slump. Passenger car sales at Dah Chong Hong, a unit of Citic, fell 23.6% to 6,700 last year, compared with an industry average decline of 17.7%.
A stronger yen was partly to blame for the poor performance at Dah Chong Hong, but the subsidy for electric vehicles generated criticism and the argument that the tax waiver on electric cars, which stands at HK$97,500 for first registrations, was unfair.
That’s the message Chan seems to have heeded, leaving the market now wondering if Tesla Hong Kong will run into a wall this year.
For a reference on how bad things could get for Tesla sales in Hong Kong, take a look at Denmark. In January 2015, Denmark slapped a registration tax on Tesla that pumped up the price of a Tesla S Model to US$280,000 from US$100,000. Sales fell about 70% the next year.