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.

Now that EV market consisted of literally zero new registrations last month – hardly a “beacon city” anymore.

As previously reported, Hong Kong started an aggressive phaseout of its tax exemption for electric vehicles in April.

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.

Tesla’s dominance in the market might have contributed to the removal of the incentive.

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 all together.

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

The problem is that if gas-powered vehicles are taxed like electric vehicles, which will be the case in Hong Kong by the end of the phase out, 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.

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