Tesla CEO Elon Musk once described Hong Kong as a “beacon city for electric vehicles” due to its extremely high rate of EV adoption. He might have as well called it a “beacon city for Tesla” since most of those vehicles were Tesla’s, which held over 80% market share in Hong Kong’s EV market.

But the government succumbed to pressure from other automakers last year and slashed EV incentives.

Electric car sales in the “beacon city” have now come to a crawl and Tesla is reportedly planning to downsize its 200-people workforce in the region if it continues.

In September 2016, we reported on German automakers complaining about Tesla’s owning the EV market in Hong Kong, which they claim was because the EV incentive didn’t apply to plug-in hybrids (Tesla only makes all-electric vehicles while German automakers offer more plug-in hybrids).

At the time, their lobbying effort was focused on including plug-in hybrids, but they also said that the current implementation of the incentive was “unfair”.

The local government instead decided to give up on the incentive altogether.

Hong Kong started an aggressive phaseout of its tax exemption for electric vehicles in April 2017.

While it was clear that a drop in demand would follow the change, which basically increased the price of EVs by 50 to 80 percent, the complete halt of sales is an even bigger impact than anticipated.

Of course, the anticipated phase out created an artificially high demand for EVs and resulted in almost 3,000 EV registration in March or an increase by about 30% of the city’s entire EV fleet.

Tesla benefited from that rush from buyers to take advantage of the tax exemption before it started phasing out. All but 20 of the 2,964 cars registered in March were Tesla’s vehicles – though Tesla is also believed to have registered some of those themselves.

8 months later, Tesla sold only 32 more cars in Hong Kong, according to registration data.

Tesla had grown its operations significantly in the city leading to the removal of the incentive and even opened a massive new service center just months before sales crashed.

Now the South China Morning Post reports that Tesla sent a letter to Carrie Lam, Chief Executive of Hong Kong, to ask her “to rethink last year’s ­removal of a full registration tax waiver on electric cars for private use.”

The automaker responded to the report:

“Our launch in Hong Kong in 2010 was one of Tesla’s earliest, and we remain committed to our customers here, affirming that commitment with the opening of our second Service Centre last year. We remain hopeful that the government will continue to encourage more electric vehicles on the road and preserve Hong Kong’s lead in clean, sustainable living.”

The government is reportedly reviewing the change in its latest budget to be released this month.

Electrek’s Take

Unfortunately, the stop of EV sales in Hong Kong shows that government incentives still have a strong impact on electric vehicle adoption, the same result happened in Denmark when they removed their incentives a year before.

The problem is that if gas-powered vehicles are taxed like electric vehicles, which is now roughly the case in Hong Kong, it means that the gas-powered cars are the ones being subsidized since their price doesn’t account for their cost on the environment and local air pollution – something Hong Kong knows very well.

What’s even more frustrating is that several automakers are believed to be behind a lobbying effort that led to the change – automakers who from the other corner of their mouth claim to be behind the electric revolution.

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