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Washington Post article: Tesla’s sales stall in Hong Kong as tax breaks end. Could the U.S. be next?

Discussion in 'Tesla Discussions' started by garsh, Jul 13, 2017.

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  1. garsh

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    #1 garsh, Jul 13, 2017
    Last edited: Jul 13, 2017
    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.
     
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    • garsh

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      #2 garsh, Jul 13, 2017
      Last edited: Jul 14, 2017
      The Model 3's Effect in Hong Kong

      So what happens when the Model 3 is made available in Hong Kong? The Model 3 starts at USD $35,000. Add a 7% markup to cover import transportation costs, and you get USD $37,450, which is HKD $292,389. The taxes on this car will end up being HK$69,292, giving an effective tax rate of 24%. Still a sizable chunk of change, but it means that a Tesla Model 3 only costs a third of the price compared to a base Model S (compared to about half the price in other locales). So the lower price of the Model 3 helps hedge against the huge import taxes that Hong Kong levies.

      Because of this, I predict that the Model 3 will sell decently in Hong Kong, assuming it continues to be viewed as a luxury brand. While Musk aimed for the starting price to be average new car selling price in the U.S., the 3 is going to be in a higher price zone in Hong Kong. While the Model 3 could conceivably become a high-volume sedan in the U.S., it will priced higher than domestic competition in Hong Kong. But it should be able to compete well against non-electric imports in its class, since EVs continue to obtain some tax break.
       
    • SoFlaModel3

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      Will demand be hurt in the US, I am sure it will.

      Is the car compelling on its own? Absolutely! Audi, BMW, Mercedes, Lexus, Infiniti all sell cars in this class without a subsidiary.

      When we started down this path, I said to myself wow I have a loaded Hyundai Sonata with lots of bells and whistles for $32k. Hard to beat this car! Then there was a Tesla for $35k and I said wow, Hyundai will never sell a higher end Sonata again. That is of course before I realized my car will probably spec out to ~$50k. In the end I'm ok with this, but many consumers may not be.

      The car simply must remain compelling on its own against like cars. Now fortunately a Hyundai Sonata is not necessarily in the same class so my initial sense was flawed logic.
       
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      • Badback

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        What would happen to the price of gas if its subsidies were removed?

        In the case of EVs, the incentive is there IF you buy one.

        In the case of gas, the subsidy is there whether you buy gas or not, it's in the taxes that you pay.

        Sound fair to you?
         
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        • garsh

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          I've added part 2 above.
           
        • dudeman

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          Agree.

          1. There is going to be incentives in other countries that will keep the demand strong.
          2. Tesla should be close to $100/kWh pretty soon if they are not there already. The price will continue to fall and they will be able to compete with ICE without incentives.
           
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