Industry Trend Analysis - End Of Tax Waiver Bad For Tesla Sales - MAY 2017

BMI View : The end of the full waiver of first registration tax for EVs in Hong Kong from March 31 2017 will stifle the development of the city-state ' s EV segment in the short term as EV prices rise. This will be particularly bad news for premium brand Tesla , which has dominated the market due to generous tax incentives.

In late February, Hong Kong's Financial Secretary Paul Chan Mo-po announced that the full waiver of first registration tax (FRT) for electric vehicles (EVs) - a measure that has been in place for more than 20 years - would end on March 31 2017. As part of the government's budget, 2017 FRT concessions for EVs for the period from April 1 2017 to March 31 2018 will be as follows:

  • Electric private cars: their FRT will be waived up to HKD97,500 (USD12,557); and

  • Electric commercial vehicles (including goods vehicles, buses, light buses, taxis, and special purpose vehicles), electric motor cycles and electric motor tricycles: their FRT will be waived in full.

We believe this change in tax structure will stifle the development of Hong Kong's EV segment until the policy is revised again in 2018 by making the price of internal combustion engine vehicles even more price competitive when compared to EVs. Tax incentives offered to buyers of EVs in Hong Kong have long been the main driving force behind their popularity in the city-state. As of the end of December 2016, there were 6,829 EVs registered in Hong Kong on the roads, up from fewer than 100 at the end of 2010 ( see chart below).

End Of FRT Tax Waiver To Weaken Sales
Hong Kong - Electric Passenger Vehicle Registrations, Units
Source: Hong Kong Transportation Department, BMI

Tes l a To Be Hardest Hit

These reduced tax subsidies will lead to a slowdown in sales of EVs, particularly in premium brands like Tesla and BMW, as retail prices of these vehicles rise drastically. The cap of HKD97,500 (USD12,557) will mean that consumers looking to purchase a new Tesla 90D Model in Hong Kong will have to pay registration fees totalling HKD917,485 (USD118,160) when previously there was no FRT in place ( see table below).

New Policy To Lead To Surging Prices
From April 1 2017 Before March 31 2017
* Based on manufactures suggested retail price in the US. Source: Bloomberg, Tesla, Hong Kong Department Of Transport, BMI
(A) Approx. MSRP*(HKD) 846,400 846,400
First HKD150,000@40% 60,000 0
Next HKD150,000@75% 112,500 0
Next HKD200,000@100% 200,000 0
Remainder@115% 544,985 0
(B) Total Initial Registration Fee 917,485 0
(A+B) Approx Retail Price(HKD) 1,763,885 846,400
New Tax Waiver Scheme 97,500
New Retail Price(HKD) 1,666,385

This large increase in the price of premium EVs in Hong Kong will see consumers who are looking to buy EVs shift towards cheaper offerings from the likes of Nissan and Renault, which will result in a change in the competitive landscape of Hong Kong's EV market where Tesla has dominated. Tesla's sales volumes in Hong Kong accounted for approximately 87% of all EVs registered in the city-state in Q416, with BMW coming in at second place with a 5.4% market share ( see chart below).

Tax Waiver To Shake-Up Tesla Dominance
Hong Kong - Electric Vehicle Market Share By Brand, %
Source: Bloomberg, Hong Kong Department Of Transport, BMI