Tesla owners in China are asking for refunds after the company scored a 10% tax break

Key Points
  • Last week Tesla scored a 10% purchase tax exemption in China, but customers there aren't sure if it applies to them.
  • Tesla is the first foreign manufacturer to receive this type of tax exemption in China without having a local joint venture partner.
People visit a Tesla showroom in Beijing, China on July 9, 2014.
Wang Zhao | AFP | Getty Images

Tesla customers in China are scrambling to figure out if they can get a refund after the electric car company scored a tax break from the government there last week.

Authorities in China exempted Tesla's cars from a 10% purchase tax, making the electric car maker the first foreign manufacturer to attain the benefit without a local joint venture partner. With Tesla stressing the increased importance of expansion in China, the exemption announcement buoyed Tesla's shares.

China's Ministry of Industry and Information Technology (MIIT) said that dozens of battery-electric and plug-in hybrid vehicle makers qualified for the tax break. That list includes Toyota and Daimler, which have local partners, along with domestic companies like Geely, Guangzhou Auto, NIO and SAIC Motor.

While the news was a boon for Tesla, it also caused some confusion. Customers aren't sure if they are eligible for the refunds retroactively, or whether the tax break applies only to new buyers.

Some customers in China complained that Tesla should have warned them that a tax exemption may be possible, so they could have delayed purchases and qualified for the deal. But Zhu Xiaotong, Tesla's China head, told the state-sponsored Global Times that Tesla China couldn't make information about its application for the exemption public.

The Global Times said that frustrated Tesla owners have taken to WeChat to discuss the issue, and customers have sent letters to Tesla offices seeking refunds.

"The MIIT announcement was written with lots of ambiguity as to who benefits from the inclusion of Tesla" on the exempt list, wrote Junheng Li, the CEO of JL Warren Capital, in an email to CNBC. "Consumers want clarity from the government, not from Tesla China."

Shanghai Mayor Ying Yong and Tesla Chairman and CEO Elon Musk pose in from of a plaque for the Tesla (Shanghai) Ltd. Electric Vehicle Development and Innovation Center.  
Source: Shanghai Municipal People's Government 

Li's equity research firm, based in New York, focuses on Chinese companies as well as U.S. firms with significant exposure in China. She said the havoc isn't Tesla's fault, because the company wouldn't have known about the tax break ahead of the government's announcement on Friday.

Tesla did not respond to requests for comment.

The exemption also has to be viewed separately from the trade war between China and the U.S. The Trump administration has been locked in an escalating tussle with Beijing for more than a year, with each government announcing tariffs on goods coming in from the other country.

Tesla is, at this point, not exempt from tariffs that Beijing has promised to resume by December 2019, including a 25% toll on U.S. cars and auto parts.

Tesla makes its cars in Fremont, California, and its batteries at a Gigafactory outside Reno, Nevada. It has a new battery and car factory underway in Shanghai, and aims to begin production of its Model 3 electric sedans there by the end of this year, largely to evade the costs of importing to China.

China represents the largest market for electric vehicles in the world today. The China Association of Automobile Manufacturers expects sales of "new energy vehicles" — including pure battery electrics like Tesla's Model S, X and 3 — to reach 1.5 million in 2019.

WATCH: What Tesla's tax break means for the company's stock

What Tesla's tax break means for the company's stock
What Tesla's tax break means for the company's stock