Government officials in Hong Kong have eliminated a popular tax exemption that made electric vehicles much cheaper to buy than comparable gasoline-powered models.

Now Tesla worries it could take the brunt of the blowback.

The loophole helped make Hong Kong one of the biggest overseas markets for the Silicon Valley carmaker's luxury electric cars.

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Before the exemption expired on April 1, the Model S carried a base price of 570,500 Hong Kong dollars (about $73,400). That’s about on par with the sedan’s base price in the United States.

That figure has now risen significantly to 926,000 Hong Kong dollars (roughly $119,100).

As a global financial hub, Hong Kong has far more than its share of rare and expensive luxury and performance cars, and even a relatively pricey Tesla is simply practical daily transport for a segment of its drivers.

Ferrari’s 30 years in Hong Kong celebration

Ferrari’s 30 years in Hong Kong celebration

For the most part, electric vehicle owners and supporters are vehemently opposed to the new policy. They argue it will kill the burgeoning electric car market by forcing current owners to go back to a gasoline-powered model the next time they buy a new car.

Last year, nearly 7 percent of new cars sold in Hong Kong wore a Tesla emblem. Unsurprisingly, the California-based company also disagrees with the ban.

“Almost all our new owners are replacing a particularly high-polluting fossil fuel vehicle,” the company told Bloomberg. “This new policy threatens to move Hong Kong backwards.”

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The government insists it’s not trying to curtail the growth of electric cars.

Buyers who ditch fossil fuels are still eligible for other tax breaks, and the steep annual registration fees for battery-powered models remain much cheaper than those of their gasoline-burning counterparts.

For years, the exemption convinced scores of wealthy buyers to get a Tesla instead of a Maserati or a Porsche, so removing it is a blow to the segment.

2014 Tesla Model S in China

2014 Tesla Model S in China

However, there are plenty of other reasons for motorists in Hong Kong to give up gasoline, and they’re not going away any time soon.

Because Hong Kong is smaller than Rhode Island, motorists rarely drive very far and range anxiety isn’t as important of an issue as it is in bigger nations.

Also, gasoline is more expensive in Hong Kong than anywhere else in the world; currently, a gallon costs about $7.24.

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Sales of expensive, high-end electric cars like the Model S and the Model X will likely suffer in the short-term now that the exemption is gone.

Buyers may turn instead towards cheaper battery-powered cars like the Nissan Leaf and the BMW i3.

When the more affordable Tesla Model 3 is launched in Hong Kong, however, the company may well build up sales momentum once again.

— Ronan Glon


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