Tesla’s (NASDAQ:TSLA) sales in Hong Kong came to an abrupt halt after the city eliminated a tax break on the electric car maker’s vehicles, adding to Wall Street’s concerns heading into the automaker's critical Model 3 launch.
Like other governments, Hong Kong offers a tax subsidy on certain electric vehicle purchases. But Hong Kong capped its program in April, effectively raising the price tag on Tesla’s pricey Model S and Model X. Sales subsequently disappeared. Zero new Tesla models were registered in Hong Kong in April, according to government data cited by The Wall Street Journal.
The slowdown followed a big sales month in March, as shoppers sought to get ahead of the tax change. The Wall Street Journal said 2,939 Teslas were registered during the month, nearly double the number of vehicles registered in the second half of 2016.
Tesla’s hiccup in Hong Kong highlighted investors’ recent jitters over demand for the Model S and Model X. Last week, Tesla disclosed fewer deliveries than expected in the second quarter, igniting a selloff of the company’s shares.
Also, Tesla expects the Model 3 to help the company surpass the 200,000 sales mark, at which point the U.S. government’s $7,500 tax credit on electric car purchases phases out.
Tesla ticked 0.4% higher to $314.34 in Monday trading, recovering from an intraday low of $303.13.
In a statement, a Tesla spokesperson noted that revenue in China tripled between 2015 and 2016 even though the country offers no incentives and imposes a tariff on imported vehicles.
“Tesla welcomes government policies that support our mission and make it easier for more people to buy electric vehicles, however, our business does not rely on it,” the spokesperson said.
Tesla added that it believes the Hong Kong market will be strong in the long-term, saying “it’s to be expected that demand will be impacted in the period immediately following the change.”
Tesla is coming off a rough week in which General Motors (NYSE:GM) retook the lead as the most valuable U.S. automaker. In addition to disappointing second-quarter deliveries, the Model S didn’t qualify for a Top Safety Pick award from the Insurance Institute for Highway Safety, and Volvo announced plans to make only electric and hybrid vehicles by 2019.
Goldman Sachs analysts cut their price target to $180 from $190. The investment bank said flattening sales of the Model S increase the odds that Tesla could miss its Model 3 goals.
The Model 3, Tesla’s first vehicle for the mass market, has begun to roll off assembly lines in California. Tesla employees will be the first customers to take delivery of the small sedan, which has a starting price of $35,000 before tax incentives.
Tesla CEO Elon Musk posted a photo of the first production version of the Model 3 on Twitter (NYSE:TWTR).