Tesla is suddenly the No. 1 car in Norway, where the government is using its oil wealth to smooth the way for battery-powered cars

October 2, 2013, 9:09 a.m. ET

Tesla Sedan Roars Ahead in Norway

Norway Has Relatively Small Market But Buyers Are Affluent

SVEN GRUNDBERG And NICLAS ROLANDER

Tesla Motors Inc.’s TSLA -6.24% Model S is suddenly the No. 1 car in Norway, where the government is using its oil wealth to smooth the way for battery-powered cars. The California company’s electric sedan, the Model S, vaulted to become the best-selling car in Norway in September, just its second month on the market. Tesla captured 5.1% of Norway’s total car sales share during the month. The total number of rechargeable electric cars on the road in Norway is estimated to total 14,500 vehicles. (In all of 2012, auto makers sold just 13,427 electric cars in the larger U.S. market, according to figures compiled by the Electric Drive Transportation Association.)Advocates of electric vehicles point to Norway as a template for what the rest of the world needs to do to jump-start electric car sales.

But what works in this nation of 5 million people filled with potential buyers made wealthy by a booming gas and oil industry might be a hard sell in other markets.

Policy makers in Norway have exempted electric vehicles from a 25% value added tax and a registration tax that can reach 10s of thousands of dollars a vehicle. Its fuel prices are among the highest in Europe, with a typical liter of petrol costing 15.16 Norwegian kronor, which is roughly equivalent to $9.60 per gallon.

Electric cars also are exempt from tolls, and get access to bus lanes on Oslo’s highways, thus dodging the congestion that snares ordinary drivers during rush hours.

Norwegians car buyers have to be willing to pay premiums, even compared with neighboring Sweden, which is already considered high cost. An Audi A8 costs 1.06 million kroner ($176,000), $50,000 more than in Sweden, due to fees based on weight and emissions. Boosted by such measures, electric vehicle sales in Norway during August were more than twice that of the much larger German market in the same month. Nissan Motor Co.’s 7201.TO -1.01% Leaf electric car has become the fifth best-selling model of any kind in Norway through nine months, capturing nearly 3% of the total share of the market.

Norway and its capital city, Oslo, also have built a hefty network of taxpayer-supported charging stations. On any given day, owners of Leafs and other cars like it can pull into one of a clutch of public lots that have public chargers and are exclusively for EV use.

Oslo Mayor Fabian Stang, who owns an electric bicycle, recently declared his city the “capital of electric vehicles.” He calls Norway’s stance on electric vehicles “part of our bigger commitment to the environment.” Norway’s national government has estimated the country owns the most electric vehicles per capita in world.

Norway’s spending on electric car subsidies is buoyed by a $750 billion sovereign-wealth fund—believed to be the largest in the world. So the Nordic state has deeper pockets than most in Western Europe and can easily subsidize electric car sales.

In other countries, electric car demand has been less robust. France is home to one of the most vigorous electric car evangelists in the auto industry, Renault SARNO.FR -1.17% Chief Executive Carlos Ghosn. But electric car sales there account for less than 1% of the total market.

Electric cars have so far captured 3.4% of Norway’s new car market through the first eight months of 2013, according to data from AID Ltd.

In Germany, where Volkswagen AG VOW3.XE -2.26% recently declared its ambition to be the world electric car leader, such vehicles captured an even smaller 0.2% share. In the U.K., electric cars represent just 0.1% of the market.

Tesla was making inroads in Norway even before the Model S launch. Some well-heeled buyers amassed large collections of the company’s original Roadster. Norwegian taxi fleets have even begun buying Teslas.

It’s not clear whether the Model S can sustain its lead in Norway. The company just launched the Model S in August, and pent up demand could account for some of September’s 616 Model S sales, as tallied by Opplysningsrådet for Veitrafikken, which compiles Norwegian car sales data.

“Demand is still very strong in Europe and Norway,” said Kathrin Schira, a Tesla spokeswoman. She added that Tesla expects demand for its cars to remain strong as the company opens more stores, service centers, and rolls out its network of charging stations.

The Norwegian government’s willingness to juice demand for a premium vehicle like the Model S has drawn fire from some critics.

“As long as we’re talking about small cars like the Nissan Leaf I don’t mind, but here you’re subsidizing a car that without subsidies would cost more than a million kroner,” says Jon Winding-Sørensen, a veteran Norwegian car journalist.