Tesla’s sales stall in Hong Kong as tax breaks end. Could the U.S. be next? It's the usual style of Tesla-doomsday article. Talk about how sales have dropped precipitously in countries that have removed EV incentives, discuss how the US Federal Tax Credit will be ending soon for Tesla, and wrap it up in a nice click-bait headline. Will demand for Tesla vehicles take a hit when incentives are removed? Sure. There are very few consumer goods that don't conform to the price elasticity of demand. As the price of a good goes up, the demand tends to drop. If the price goes down, the demand for it tends to increase. But are we going to see the same huge drop in demand for Tesla vehicles that we're currently seeing in Hong Kong and Denmark? The Washington Post article raises that question, but just leaves it at that - with the implied answer being "yes". I want to take a closer look at what's happening in Hong Kong so that we can make a more-informed decision of what might happen in the U.S. as the tax credit is phased out. Here is the Model S configurator for Hong Kong. The price for a base Model S 75 is HK$582,100 (USD$74,531, a 7% premium over the U.S. base price of $69,500). Before the new tax laws, electric vehicles were completely exempt from the First Registration Tax (imposed on imported vehicles). For imported passenger cars, the first HK$150,000 is taxed at 40%, and the next HK$150,000 is taxed at 75%. EVs still have a discount - the first HK$97,500 is waived. But this is only USD$12,500, so that leaves a lot of tax to be paid. A base 75 with taxes becomes HK$951,515, an effective 64% tax rate. A top of the line P100D with a base price of HK$1,254,300 becomes HK$2,396,745 a whopping effective tax rate of 91%. Now you can see why Tesla sales peaked right before the tax exemption was axed. Who in their right mind would buy the car right after it doubled in price? If you were considering a purchase, you would be sure to purchase before the incentive disappeared. In the US, we will be losing a $7500 tax credit. What is the effect on the price of a Model S? Let's assume we can just take $7500 off the price of the car to represent the credit. A base Model is will go from $62,000 to $69,500, an increase of 12%. A top of the line P100D will go from $152,500 to $160,000, an increase of 5%. The percentage increases in the price for the Model S are almost a whole order of magnitude smaller than what Hong Kong is facing. I imagine there will be some decline in Model S sales as the tax credit is phased out, but it's not going to be nearly as sharp. And this doesn't even touch on how the introduction of the Model 3 will change the situation in both countries. I'll write up a "part 2" of this article to explore that in a little more detail a bit later.