Teslas Hit by 180% Danish Tax on Cars as Green Goals Ditched

First Look: Tesla Model X SUV
  • Denmark to tax electric cars like other vehicles by 2020
  • Government defends measures arguing they will create jobs

Denmark will almost triple the price of Teslas as it phases out tax breaks on electric cars.

The country will also make diesel vehicles more attractive by canceling a pollution levy, according to provisions in the 2016 budget draft. The government is defending the measures by saying they will help businesses save money and create more jobs.

“Things have to be done with reason,” Finance Minister Claus Hjort Frederiksen told reporters after the draft was unveiled in Copenhagen on Tuesday.

As the world looks on in disbelief at Volkswagen’s emissions scandal, Denmark is pushing through policies that will undo the previous administration’s efforts to steer consumers toward environmentally friendly vehicles. One involves extending Denmark’s 180 percent levy to all cars, regardless of their emission levels; another concerns a special tax on Nitrogen-Oxide emissions, which are generated from burning fossil fuels and are more abundant in diesel than gasoline cars.

Phasing out tax breaks on electric cars means the price of a Tesla Model S is set to increase from about 650,000 kroner ($97,665) to around 1.8 million kroner.

Marcus Asplund, an economics professor at the Copenhagen Business School, says this will inevitably lead to fewer sales of Teslas. But he also says the current fiscal regime had given Teslas -- ultimately a luxury car -- a competitive advantage over rival models such as BMW 5s. Asplund says he and his wife are now discussing whether to place an order for a Tesla before the new tax comes into effect.

The levy on zero-emission vehicles was announced less than a week after Elon Musk paid a visit to Copenhagen and just hours before Tesla’s chief executive officer delivered the first models of the company’s long-awaited Model X SUVs to buyers in California.

Denmark’s move marks its latest shift away from measures that had once put the Scandinavian country at the forefront of innovative policies designed to promote renewable energy. The three-month old government has already said it is abandoning ambitious CO2 emissions targets and dropping plans to become fossil-fuel free by 2050. That policy shift was revealed on Sept. 2, the same day U.S. President Barack Obama made a global appeal for urgent action to fight climate change.

Frederiksen argues that tough decisions need to be made against the backdrop of a widening budget deficit.

"The former government may have promised to keep electric cars exempt from car taxes, but they just forgot one thing: finding the money to do so," Frederiksen said.

Denmark plans to raise just short of 30 billion kroner on car taxes in 2016, while the Tax Ministry estimates that treating electric cars like their fossil-fuel equivalents will add 450 million kroner a year in revenue.

A total of 1,240 electric cars were sold in Denmark during the first half of 2015, up 97 percent from a year earlier, according to the latest figures from the European Automobile Manufacturers Association. Tesla’s Model S consolidated its role as a Danish best-seller during the period.

According to other provisions contained in the budget draft, the Liberal government also plans to drop the so-called NOx tax, which was introduced by the previous administration to reduce pollution. The move will save businesses an estimated 240 million kroner in 2016, according to the Tax Ministry.

The resulting loss in revenue to state coffers is equivalent to 0.04 percent of annual receipts. But the timing of the move, coming at the height of the Volkswagen scandal, makes the political cost potentially higher.

"This government only supports old technologies and has no vision for the
future," Ida Auken, an opposition lawmaker who previously served as environment minister, told Bloomberg on Wednesday.

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