China will exempt Tesla cars from the tax on the purchase

BEIJING (Reuters) – China will exempt Tesla Inc. (TSLA.O) electric vehicles from the purchase tax, said on its website the Ministry of Industry and Information Technology (MIIT), raising the shares of the company to more than 4% at the beginning of the session.

China currently levies a 10% purchase tax on the sale of each vehicle. This measure could reduce the cost of buying a Tesla car up to 99,000 yuan ($ 13,957.82), according to a message posted on Tesla's WeChat account on social networks.

Sixteen variants – all Tesla models sold in the country – are listed in the document published by MIIT, including models S, X and 3. No reason has been given for the decision to exclude tax cars.

"This (a tax exemption) would be beneficial for Tesla, especially as China is the most important market for Tesla to become profitable," said Frank Schwope, an analyst at Nord LB.

"On the other hand, the new punitive tariffs are not yet out of the table, which can weigh heavily on Tesla."

LMC Automotive estimates that 23,678 Tesla vehicles were sold in China in the first seven months of the year, nearly double the number of cars sold a year earlier.

China offers a lot of potential to the company run by Elon Musk given its status as the largest electric vehicle market in the world.

Tesla is already building a plant in Shanghai, the first overseas plant, which is expected to start production by the end of the year and offer an annual production capacity of 250,000 vehicles after the inclusion of Y model production.

The company is also making a major sales effort in China by promoting race events, showroom parties with DJs and a range of Chinese Tesla stickers for chat applications.