China is not only the world's largest car market but also one of the biggest for electric vehicles. That's because the Chinese government, in an effort to combat extreme air pollution, initiated incentives towards the purchase of EVs years ago. The US government and many states have similar programs as well.

But now Reuters reports the Chinese government is cutting subsidies on electric vehicles by 10 percent this year, a new policy since last week though there will be a three-month transition period. What does this mean for Chinese Tesla Model 3 buyers? Basically, the price is about to increase despite the fact the vehicle is now built at Tesla's new Shanghai Gigafactory. Two Model 3 variants are currently produced and sold in China, the Standard and the Long Range.

The latter will soon cost 303,550 yuan instead of 299,050 yuan, or $42,900 and $42,000, respectively. The Long Range Model 3, which is slated to go on sale in China this June, will now cost 344,050 yuan ($48,500) instead of the previously promoted 339,050 yuan ($47,800). The report adds that the subsidy will apply only to passenger vehicles costing less than 30,000 yuan, or about $42,375, after the transition period. Looking further ahead, China plans to cut EV subsidies by 20 percent next year and by 30 percent in 2022.

But why is China cutting EV subsidies at a time when its own economy is still recovering from the coronavirus pandemic? Isn't the main goal to try and boost sales to help make up for previous losses?

That would make sense, but the Chinese government has likely determined that EVs, most notably Teslas, are already popular enough on their own. You see, attaining high status is a central part of Chinese culture and one of the best ways to display this is by owning a new Tesla. Why should the government offer tax incentives when demand is already high?

At the same time, the Chinese government is preparing other new policies to help boost consumption following a new car sales drop of 42 percent in the first three months of this year because of the outbreak.