Hong Kong’s electric car market comes to emergency stop after tax waiver scrapped, but does that really mean air pollution will be worse?

In the gloomy indoor car park at the Cyberport 2 business park on Hong Kong Island, a line of immaculate electric vehicles (EVs) are plugged into superchargers adorned with a glowing Tesla logo.

Two floors above, at the Recharge café, members of Charged Hong Kong are discussing the impact of recent changes to the tax waiver policy on EVs over coffee at one of their regular Sunday morning meet-ups.

“To really be aware of Hong Kong air pollution, you need a drive an open-top EV through Central and just try breathing,” says Mark Webb-Johnson, chairman and co-founder of the group, which advocates EVs to improve the city’s air quality.

The government’s decision to scrap the first registration tax waiver on electric vehicles – introduced to cut air pollution – has left advocates like Webb-Johnson and his 700 or so fellow club members angry and bewildered.

Since the April 1 introduction of the first registration tax on EVs, vehicle prices have shot up by 50 to 80 per cent, depending on the model, with tax relief now capped at HK$97,500. The impact has been immediate, and appears to have killed off the future of EVs in Hong Kong overnight.

Transport Department figures indicate there is a total of 10,589 private EVs registered in the city, and 2,964 of them were registered in March 2017 alone. That healthy growth then hit a red light when not a single private EV was registered in April.

“There was no first registration of an electric private car in April 2017,” a department spokesman confirms.

Southern District councillor Paul Zimmerman has described the move as “stupid”. But not everyone is as critical, and support for the tax comes from at least one unlikely source.

“The number of private vehicles on the road is now over 750,000 and that is the key issue – congestion in Hong Kong is serious, and while EVs have lower emissions, they also contribute to the congestion,” says Winnie Tse Wing-lam, campaign manager for the Clean Air Network.

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The typical Hong Kong EV owner does not match the stereotype of an earnest environmentalist. Of the 2,964 private EVs registered in March, all but about 20 were high-performance luxury saloons and SUVs manufactured by Tesla. According to Bloomberg Intelligence, Hong Kong represents about 6 per cent of Tesla’s global market.

The Tesla Model S, like the one owned by Webb-Johnson, is a finely engineered car. It is capable of reaching 100km/h in as little as 2.7 seconds, and incorporates cutting-edge driver-assist technology.

It can circumnavigate Hong Kong twice without a recharge and previously cost about HK$570,000 (under the new tax regime, the price is more than HK$900,000). However, the domination of Tesla means zero-emissions motoring in Hong Kong has been largely an elitist activity.

Webb-Johnson doesn’t see anything wrong with the luxury sector leading the way on an EV revolution in a city that has an acute problem with air quality.

“Of course, we need to replace all vehicles with EVs but if today that is limited to the upper-end BMW and Mercedes sector, that’s a good start – why wait for a solution for every model?” he says.

Clean Air Network begs to differ. “Subsidies will just encourage more purchases of private vehicles,” Tse says, echoing the government’s justification for ending the waiver. The high first registration tax on private vehicles in Hong Kong is intended to act as a deterrent to car ownership and is as high as 115 per cent the sales price of the most luxurious cars.

Tse has another point. “More than half of EV owners have more than one vehicle, so we are often subsidising people’s private car collections,” she says, quoting February 2017 figures showing that about 60 per cent of EV owners have more than one car.

One owner at the Charged Hong Kong meeting claims to own three Teslas, with another three on order. Webb-Johnson, however, still does not believe the new tax policy will reduce congestion, which he thinks has more to do with poor traffic management.

“Reducing private vehicle ownership is admirable, but this reduction in the tax waiver will have no impact on that – it just makes EVs significantly more expensive, so people will just buy petrol vehicles instead. It’s not complicated to work out,” he says.

Tse agrees that motorists will simply switch to dirtier technology if there is no corresponding increase in the first registration tax on petrol vehicles, for which there hasn’t been since 2011.

“There is no point putting a cap on private EV tax waivers and leaving first registration tax the same on petrol and diesel cars because people will just convert back to fossil fuels,” she says.

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This leads to suspicion of another motive for the government’s policy change.

In the same blog in which he branded the new EV policy as “stupid”, Zimmerman infers that the move was motivated by pressure from European luxury car manufacturers aggrieved at losing market share to a subsidised competitor – Tesla.

“Panic erupted and lobbying by the traditional brands went into overdrive,” he writes. “Questions like, ‘Why is the public sponsoring toys for rich people?’ were raised in Legco.”

Edwin Lee King-yan, co-founder of Charged Hong Kong, says this isn’t the case. “This is not about boys showing off with fast toys – there are other owners’ clubs more focused on that side of things,” he says, admitting that while he was initially attracted by the performance and design of the Tesla, the environmental benefits are an essential part of the package.

He adds that electric cars still only constitute about 1.3 per cent of all vehicles on the road in Hong Kong, so the impact on congestion by effectively halting sales will be negligible. Meanwhile, their membership merely reflects local market share.

“It’s 95 per cent Tesla – and it’s Tesla that has driven sales of EVs in Hong Kong by offering high performance, luxury and huge environmental benefits,” he says. Tesla, he notes, has also made a huge investment in infrastructure (such as in the supercharging bay below us in the car park), which makes being a Tesla owner easier.

Most experts agree that EVs are not a panacea for air quality – particularly not in Hong Kong, where more than 50 per cent of the energy mix to produce electricity is still derived from coal. But they can be a significant part of an integrated policy to reduce roadside emissions.

However, there remain two major practical obstacles in Hong Kong to EV adoption that extend far beyond the elite luxury sector to mainstream family vehicles and the commercial sector.

First, even with subsidies, EVs are still expensive compared to equivalent models with internal combustion engines. This is simply because lithium-ion batteries are costly to make as the scale of production is not yet at the same level as traditional technology.

Second, Webb-Johnson says, is the charging infrastructure. “It’s like chicken and egg – no one will supply the charging infrastructure without the volume of demand in place,” he says, explaining that the cheaper EVs have smaller batteries so their range is shorter.

If home charging is not possible because the owner lives in an older high-rise apartment, public infrastructure is the key issue. Commercial vehicles and taxis cannot spend all day charging when they need to be in use.

According to the Transport Department, there are now more than 1,500 EV chargers for public use in Hong Kong, spread across various districts and suitable for a range of charging standards.

While efforts to install the infrastructure have been admirable at shopping malls, hotels and government car parks, there are still weak spots, such as older residential buildings and those with facilities for commercial vehicles.

Derek Tom, another Charge Hong Kong member and Tesla owner, is an admirer of Tesla CEO and founder Elon Musk’s vision for sustainable transport.

Tom believes Tesla’s business plan was to convert the upper luxury market first, before following up with cheaper models for a more general market once a scale of production had been established. He points to the forthcoming Tesla 3, which goes into production later this year and will retail for about US$30,000.

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That strategy has been sabotaged in Hong Kong, with widespread speculation that the motivation was nothing to do with improving congestion but, as Webb-Johnson suggests, more about the government kowtowing to powerful European carmakers.

“The government caved into the petrol lobby at the expense of our children’s health,” he says.