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Will Hong Kong Return As Tesla's Beacon City?

Mar. 01, 2018 10:49 AM ETTesla, Inc. (TSLA)BMWYY, BYDDF, MMTOF, NSANY, RNLSY, VWAGY56 Comments
Tokyo Picker profile picture
Tokyo Picker


  • Hong Kong used to be one of Tesla's premier markets.
  • Sales collapsed due to the withdrawal of subsidies.
  • Now smaller subsidies are back - will this be enough for Tesla to regain former glory?

In 2016 Tesla (NASDAQ:TSLA) sold about 6,000 Model S & X vehicles in Hong Kong (population 8 million), more than in the UK (60 million), Canada (35 million) and Australia (24 million) combined. That was more than 7% of Tesla's production, and, coincidentally, about 7% of HK's entire car market. Elon Musk declared that Hong Kong was a "beacon city" for EV adoption. In the first quarter of 2017, things got even better - 3,700 cars registered. Then it stopped. In the final 3 quarters of 2017, Tesla sold 32 cars in Hong Kong. Not 3,200. 32. Despite desperate discounting as described here, and innovative promotions/discounts, as shown here.

The reason was simple - from April 1, 2017, the HK government ceased to exempt electric vehicles from the First Registration Tax (FRT) - a tax that can more than double the price of new vehicles in Hong Kong, and which is designed to tax more expensive vehicles more heavily than cheaper vehicles.

HK FRT(Source: HK Transportation Department)

Because of the tiered rate, under the full exemption regime, luxury EVs were proportionately more advantaged over their ICE peers than were mass market EVs.

EVs still benefit from a capped FRT reduction of HK$97,500 (US$12,500) until March 31, 2018, but even in Hong Kong's environment of high gasoline taxes & prices (US$7.7 per gallon), that was not sufficient to make EVs competitive. Tesla went from viewing Hong Kong as a "beacon city" to threatening to cutback or pull out. As a "source close to" Tesla put it to the South China Morning Post, “Without government support, who is ­willing to invest in green technology?”

Now the HK government has changed course again. As announced today, the government intends to (i) continue the current, ineffective, HK$97,500 (US$12,500) reduction, and (ii) offer a reduction of HK$250,000 (US$32,050) subject to the new owner's scrapping

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Tokyo Picker profile picture
The opinions expressed herein are the opinions of Teton Record Services Limited Company. Publication of these opinions is not a recommendation for investment, nor is it a solicitation of any kind of business or transaction.The employee authoring this opinion has thirty years in investment banking, specializing in tax arbitrage and asset finance, and has a Masters degree in politics and economics from Oxford University.Teton Record Services Limited Company is a corporation established with limited liability under the laws of the State of Wyoming.

Analyst’s Disclosure: I am/we are short TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (56)

xonkd profile picture
Speaking of subsidies, Troy over on tmc who is the master of tracking, believes tesla has delivered @162k cars in the us and the 200k limit will be met may 1. Scroll down the thread to his post

Andreas Hopf profile picture
I have 165,049 cars sold in the U.S. since inception (incl. Roadster).
kitsinu profile picture
165,049 cars sold in the U.S... With 24,000 Model Ss and Model Xs expected manufactured this quarter, and about 8,000 Model 3s expected manufactured this quarter, it looks like Tesla is closing in on the 200,000 cars delivered in the U.S. that will cause the tax credits to be cut in half.

Might Tesla be cutting their own production in order to extend the tax credit for another quarter?

I would expect they could simply send more cars to other countries for a bit this quarter instead. So at minimum, something else would also have to come into play for that to happen.
xonkd profile picture

'Might Tesla be cutting their own production in order to extend the tax credit for another quarter?'

I really can't see them playing too many games with this; they need deliveries and production to show the world they can really produce in volume. Since so much is hidden in the deposits anyway, it will take awhile for the 'run on the bank' of cancellations to occur anyway, if it does.
raodyssey profile picture
requin des bois,

Great take on current genre dystopian future ;-)

Soylent Green is People!!!
requin des bois profile picture
The new definition of "progressive":

- Make economical cars more expensive by forcing car companies to subsidize luxury toys only the rich can afford.
- Encourage the unwashed masses to use public transit, instead of the cars they can no longer afford. Decrease funding for said transit, as moneys are no longer available, having been spent on direct subsidies to the companies making the subsidized toys for the rich.

Im simplifying and cherry-picking of course, but still describing it as it is.

Seventies-style socialists must be turning in their grave.
Andreas Hopf profile picture
It is indeed part of the progressive plan from the likes of Peter Thiel, Marc Andreessen, et al. to corral the majority with big data and putting them into the desired place as easily disposable and controllable worker-bees, so that wealthy revolutionary minds can roam free and abandon yesteryear concepts like "society" or "equal opportunity".

This is why they desire to privatise education, transport and health far beyond what has already been achieved today and price the middle and lower class out of the market.

The dream of dictatorial oligarchs.
Maxed Out Mama profile picture
Nice article, I learned something. Maybe Tesla could sell Model 3s in the 40-45K zone? That's probably doable for Tesla.
raodyssey profile picture

I agree. Tesla will have no trouble selling M3 in 40-45K zone....
Tokyo Picker profile picture
There are substantial additional costs for selling in HK - making RHD, rental of sales and inventory storage space in one of the most expensive pieces of land in the world, shipping, etc.
Do you have a single fact to support this? A comparative study against say London, New York, Sydney, Auckland Paris... I am in the car industry in HK
renim profile picture
this legislation, if it does last to 2021 will be very kind to Tesla M3.
Is the legislation based upon the equivalent of the MSRP, or the actual transaction valuation?

This make HK a very desirable location for Telsa M3 exports. I could see Tesla go to 10% of the HK market with a vanilla M3.
Tokyo Picker profile picture

I don't think you have quite grasped the impact of these changes.
renim profile picture
perhaps, the legislation does seem to be optimized to exclude buyers of the Tesla S and Tesla X.
but times change.

legislation tends to be based upon MSRP, Tesla M3 will have a very competitive MSRP.

what I'm saying, is that the Tesla M3 has similar MSRP to a VW EV, but carries a Audi/Porche EV type cachet. Therefore it is possible for Tesla M3 dominate non commercial sales in HK.

A Tesla is extravagant, wasteful yet good value, that is in essence a perfect fit for Cantonese style.

Main problem I see (and it could be a show stopper) Tesla Hong Kong needs leather, and lots of it, preferably exotic.
CoverDrive profile picture
Great article, Tokyo Picker.

The HK transport department is trying to address two issues. They want to reduce the number of vehicles on the road and accomplish that with their registration taxes. In addition, they want to convert the existing fleet to electric. Unfortunately, the EV-generous tax formula had an adverse effect on the first issue. So it was scrapped.

I think the new formula will provide a better balance.

And how have Tesla's HK sales done since 3/31? The December numbers are now in. In the last 9 months of 2017, there were new registrations of 31 MX and 1 MS. I think sales were actually better than this because Tesla self-registered hundreds in March.
solucky profile picture
Teslas sales will benefit exspecially for the Model 3 in 2019/2020 :)

But dont expect they hold longer a dominant position.

Details might be important at sample really scrapping or export used ones count also ?
Tokyo Picker profile picture
Sorry, don't exactly understand the question.
Do you mean RHD $35000 Teslas? Good luck with that!
solucky profile picture
" Sorry, don't exactly understand the question."

Scrapping = your old car is worth zero
Export the old car = still worth something

Expect the most ones that are interested in an tesla still have an old car that is worth 15-30K

Very good information. I was wondering what effect the new HK subsidies would do to the EV market there.
Congrats to the author of this piece.

Very important news that prove that the real disruptor of the auto industry are governments everywhere. Bravo to the HK government for finally realizing that they dont need to subsidize the rich!
Andreas Hopf profile picture
Subsidies is the only reason the Voortrekker clan of Musk/Rive established itself by going for exactly the 3 sectors with most juicy government handouts: BEVs, PV solar panels and space launches.

The insatiable greed of the clan of Musk/Rive knows no bounds.
So, a careful and objective mathematical analysis reveal Tesla "rocks".

I see. I guess that is reason enough for me to buy their stock. Or car. Thanks.
Tokyo Picker profile picture
Or indeed flame-thrower.
Xenomorpher profile picture
actually, tesla "rawks". tesla "rawks dude", is also acceptable.

attention to detail is important in such matters. let's please get it right.
Tesla is dependent on smart people buying smart cars..period. So frigging tired of all you tesla hacks repeating the same garbage day in day out...tesla rocks.
What is the false statement in the article? This is supposed to be a message board where we can understand why we might be wrong on an investment thesis: just saying its rubbish and he's a hack but not saying where he is wrong isn't furthering anyone's understanding.
If you have an emotional reaction to someone saying something negative about your investment, isn't finding out what that is and whether they are wrong the best way to increase your wealth?
This isn't an undergrad social sciences message board, pls add ideas and data.
Montana Skeptic profile picture
showboat04: "Tesla is dependent on smart people buying smart cars..period."

Yes, indeed. It takes real genius to appreciate the value of a $60k small sedan with limited range, rough handling, excessive wind noise, and crappy reliability.
Montana Skeptic profile picture
Excellent work, Tokyo Picker. Many thanks.

Fortunately for Tesla, Elon Musk has made clear that the firm does not need or rely on subsidies. In fact, he once said, Tesla would be better off without them.

Should we believe Musk? Could it be that after one has collected $7B or so in direct and indirect subsidies (tax credits, tax rebates, tax abatements, free land, cheap electricity, tax waivers, etc.), one is then satiated and satisfied?

No, I think not. Tesla continues to employ an army of lobbyists, foreign and domestic, and I would expect them to continue pushing the Hong Kong politicians on this issue.
Army of lobbyists?? Where are you getting this stuff from. Hilarious
Stevo56 profile picture
OK, so maybe it's more like a Battalion.
“The government feels that the purchase of high-end models should not be subsidized by taxpayers’ money, especially when more mass market EVs have become available on the market over the past years." - Tesla is betting this type of common sense government doesn't spread.
Tokyo Picker profile picture
Unfortunately the excellent financial sense of the HK government has not tended to spread far.
earlyriser profile picture
Tesla is dependent on government handouts. Good luck with that $35k model 3.
Kevin Wenck, CFA profile picture
Ohh, are you actually referring to that $55K "one percenter" extra golf cart of a Model 3?

This is all so farcical as it is clear that the subsidies everywhere are a main driver of EV purchases. In three to five years, battery costs may decline to a point where the subsidies are no longer needed to eliminate the $10,000 "drive train" disadvantage relative to ICE vehicles but by then Tesla's lack of profits will result in them no longer being able to reinvest in future vehicles.

When the 200,000 maximum tax credits are reached by Tesla, I would also expect at least 50 percent of the Model 3 reservations will be cancelled when potential customers finally realize that they will never be able to buy a $27,500 vehicle from the company.

I also wonder how all those people will feel about Tesla at that point after having all given the company a $1,000 interest free loan for two years?
Tokyo Picker profile picture
Relatively good.

Relative to how they'll feel when they don't get the $1,000 back.
William Shearer, Jr. profile picture

I imagine they may feel as though they dodged a bullet if the stories about Model 3 quality issues continue. I know I certainly feel that way.
Logical Thought profile picture
>>offer a reduction of HK$250,000 (US$32,050) subject to the new owner's scrapping of a previously owned vehicle, which must be at least 6 years old, and which must have been owned by the scrapper for at least 3 years.<<

No one in HK wealthy enough to buy a new Tesla currently has a car worth so much less than the US$32,050 incentive that he's willing to simply scrap it and thus write it off completely.
Drewstefer profile picture
My my you can buy 3 or 4 other cars for the price of one Tesla.

That cant be too good.

I remember Musk promising the Model S for $45,000 US ..... now they sell for $100,000 and Tesla still cant make money.


And do please tell me again about that $35,000 Model 3. What a huge lie.
jerry-j profile picture
@Tokyo Picker, (Are you also Hong Kong Picker?)
I always believe that high end EVs are e-toys for the riches. They should definitely not been subsidized.
Tokyo Picker profile picture
Didn't know there was a Hong Kong Picker - I will look - thanks.
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