Hong Kong shows how tax rebates drive Tesla sales (TSLA)

Authorities in Hong Kong put an end to a tax credit for electric vehicles that vastly reduced the cost of Tesla’s cars on April 1, and in the subsequent months the automaker's sales in the territory dropped to zero, reports Business Insider Australia.

Governments around the world have offered subsidies for electric vehicles that have helped Tesla owners to defray the cost of the fully electric and semi-autonomous vehicles, but they have masked the full cost of the cars and could leave the company reliant on them for sales.

Hong Kong’s government had offered a tax exemption that reduced the starting cost of a Model S sedan from about $130,000 to under $75,000. This incentive led a number of consumers to purchase Teslas by offsetting the effect of China's 25% import tariff. In the month leading up to the removal of the tax exemption, when the Hong Kong consumers knew the price of Teslas was set to rise dramatically, sales increased in the month of March before dropping off completely after the tax break expired.

Tesla buyers receive a number of credits around the world, including a $7,500 rebate in the US — but that credit also has an expiration date. Tesla has delivered about 230,000 vehicles globally through the end of Q2 2017, with a large portion heading to the United States. The way the US electric vehicle rebate is set up means that it will end for a particular manufacturer when that company passes 200,000 electric vehicles sold domestically, a figure it is likely approaching.

Tesla is approaching that threshold on the eve of the Model 3's release. Consumers who were looking to buy the lower-cost sedan but were counting on the rebate to reduce the price tag of the $35,000 car by by nearly 25% may opt to pass on the Model 3 now. It could also lead cost-conscious buyers looking to move to an electric car to opt out of enabling AutoPilot initially, which can limit the spread of the semi-autonomous system and the potential vehicles that could be part of the Tesla Network.

Though the Hong Kong example isn’t a perfect analogy everywhere due to the more extreme price difference, it highlights the importance of government tax exemptions in Tesla’s growth strategy and the spread of technologically advanced, fully electric cars.

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