F or years the Tesla founder Elon Musk held out from making cars in China, waiting until he was allowed to do so without the profit-diluting and technology-sapping embrace of a local partner. But once the rules changed he made his move, announcing that Tesla would build a plant in Shanghai.
That decision means he’s unlikely to be so badly impacted by last week’s announcement that the Chinese government will resume 25% tariffs on imported cars (in retaliation for a new round of American tariffs on Chinese goods). Handily for Musk, the government won’t reintroduce the levies until December – the month its forthcoming gigafactory is set to go into full production.
Last week, a high-profile meeting between Musk and transport minister Li Xiaopeng was capped by more good news for the California-based tycoon: the announcement that Tesla’s China-made cars will also be exempt from a 10% purchase tax.
Good news all round? Predictably, existing Tesla owners were unimpressed. The new exemption has reduced the cost of buying a Model S by as much as Rmb99,000 ($13,960) – stoking sentiment that earlier customers overpaid. The Global Times reports that various WeChat groups have sprung up in which Tesla drivers have argued for a refund and bashed the brand.
In response Tesla’s China head Zhu Xiaotong told the government-owned newspaper that it had applied for the exemption several times in the past but that it “didn’t have the right to make public the information” as it wasn’t clear if the application would be approved.
Clean Technica describes the government’s more accommodating treatment of Tesla as “completely giving the White House the finger”. But the latest tax break is part of a bigger picture as the government grapples with the best ways to pump-prime consumer demand at a time of slowing economic growth.
The latest retail sales figures show that spending growth slipped from 9.8% in June to 7.6% year-on-year in July. Much of that fall came from plummeting sales across the auto industry, which was hit by a nasty double whammy. Conventional car sales were constrained by the introduction of new emissions standards, which prompted dealers to offload non-conforming inventory at deep discounts (see WiC460). And sales of electric vehicles (EVs) were hit by a reduction in subsidies: cars with driving range below 250km lost the sweeteners altogether, and the rest suffered a 50% cut.
According to Clean Technica, electric vehicle sales dropped 7% year-on-year in July, the first negative growth in two years. Brands such as Geely’s Emgrand and BYD’s E5 were badly hit, but the better-performers included BMW, whose 530Le rose from sixteenth bestseller in June to fourth in July on sales of 2,752 units. (Tesla does not release sales figures but has said it hopes to produce 3,000 Model 3 cars a week in China from December).
Maybe that signals that sales of foreign brands will hold up better in the tougher environment. But most analysts think that car sales will pick up again once some of the shorter-term dampeners are removed from the equation. At the end of August, the State Council took action to stimulate consumer spending once again, with 20 policy measures, many targeting cars.
Making most of the headlines is a plan to increase licence plate quotas in major cities – Shenzhen and Guangzhou have increased licence plate quotas for conventional cars by about 50% already. The capital city meanwhile is included too – Beijing enforces a quota on plates for new electric cars too. There is an estimated 420,000-long waiting list of potential electric vehicle buyers needing plates in Beijing – the current annual quota is around 50,000.
The capital’s municipal officials didn’t sound enthused by the potential changes, telling China Times that they had not been formally instructed to change the current lottery arrangements for acquiring licence plates. At the very least, car industry experts say the Beijing government should prioritise families in the lottery system.
Any increase in the quota would help in boosting overall EV sales, which are forecast to reach about 1.2 million cars nationwide in 2019.
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