TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, July 14, 2017

Tesla’s Sales Stall In Hong Kong As Tax Breaks End. Could The U.S. Be Next?

TeslaWashington Post: Tesla’s Sales Stall in Hong Kong as Tax Breaks End. Could the U.S. be Next? 

Tesla’s sales appear to be stalling in Hong Kong.

According to data from the city’s transportation department that was analyzed and first reported by the Wall Street Journal, not a single newly purchased Tesla model was registered in April after the government in March announced changes to the tax benefits customers can get from buying the electric cars. ...

According to the Journal, the city capped the tax waiver at HK$97,500, which is $12,500 in the U.S. and is only applicable to first time owners. Prior to the change in policy, there were 2,939 first-time Tesla registrations in March and around five times that number in February.

Teslas already cost a lot more in China than the United States because of shipping and export costs, said Charlie Anderson, a senior research analyst at Dougherty & Co.

Without the tax benefit, it now costs HK$925,000 or $118,400 for a Tesla Model S in Hong Kong. Before, it cost HK$570,000 or $72,900 for the same model. ...

Tesla faces a similar challenge in Denmark, where sales of electric vehicles plunged 60.5 percent compared to the first three months of 2016, according to European Automobile Manufacturers Association. Denmark had long spared the electric car dealers from paying the 180 percent import tax on vehicles powered by a traditional car engine, but switched gears in fall 2015 to level the playing field. The country has since restored some of the subsidies, but the market still lags behind others. ...

But will Tesla soon face the same issue of reduced subsidies in the United States?

Tesla currently offers U.S. citizens a federal tax credit that roughly chops $7,500 off the sticker price of one of its models. So customers wanting to buy the company’s new more affordable Model 3, which started production on Friday, would pay $27,500 compared to the retail price of $35,000. Some states offer their own additional incentives.

But the federal tax incentive is designed to start fading out once a car manufacturer sells its 200,000th electric vehicle in the United States. Tesla has sold well over 100,000 cars and has roughly 400,000 reservations for the Model 3, according to Michelle Krebs, a senior analyst at AutoTrader, so a lot of those customers won’t be able to benefit from the tax incentive.

“We may face the same thing here in the U.S. because it’s not clear where tax credits will go,” Krebs said. “The challenge to Tesla is how to generate consumer demands without a tax credit. The tax credits have helped. But when they go away, what incentive is there for consumers to buy these cars? In California you get access to the HOV lines, but that might be going away.” ...

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