Photo: Tesla | Edited
Tesla warns potential buyers that the IRA tax credit will likely decrease for the Model 3 after December 31. Although the reason is not mentioned, it's likely that the new battery material sourcing rules entering effect from January 1, 2024, will affect Tesla EVs' eligibility.
The Inflation Reduction Act (IRA) radically changed the US EV market, with Tesla being the main beneficiary. All Tesla Model 3 and Model Y variants qualify for a $7,500 tax credit, the maximum amount offered under the IRA. Other carmakers, like GM, could not produce enough electric vehicles to benefit from these incentives, even though their EVs qualified for the credit. On the other hand, Ford built more than it could sell, with 93 days of supply clogging dealer lots across the country. Insiders blame Tesla price cuts and the shoddy dealer practices for the lackluster sales.
Still, the situation could change starting next year. There is good news and bad news, with the former being that the tax credit will be applied at the point of sale instead of when filing taxes. This turns it into a discount for those who qualify, effectively lowering the price of electric vehicles. If the market conditions don't change, Tesla will benefit even more. The bad news is that the value of the tax credit might not stay the same for all Tesla vehicles.
The EV maker warned potential buyers to expedite their purchase because the federal tax credit will likely decrease after December 31. Based on the change operated on the Model 3 landing page, Tesla expects the compact executive sedan to be primarily affected. It's unclear whether Model Y will lose part of its tax credit. On the one hand, Tesla's homepage indicates that all qualifying models could lose the full tax credit. On the other hand, the Model Y landing page doesn't mention any change to the IRA program. Time will tell.
Tesla doesn't explain why the tax credit will be reduced next year, which made some people believe this is just a sales tactic to accelerate the Model 3 sales. This could be true, considering that Tesla is preparing to launch the refreshed Model 3 this fall. Still, there's another detail affecting the tax credit amount, and this is out of Tesla's control.
According to the Inflation Reduction Act and subsequent modifications, the rules of origin that affect the battery materials and components are a moving target. With each year passing, the batteries should contain a higher percentage of the critical minerals mined in North America or a free-trade US partner. The percentage of battery components produced in North America is also increasing. For 2023, the thresholds were 40 and 50 percent, respectively. From January 1, 2024, they increase to 50 and 60 percent.
This means some Tesla models or variants could no longer qualify for the full $7,500 tax credit. The Model 3 RWD built with a lithium-iron-phosphate (LFP) battery supplied by China's CATL will undoubtedly be affected. Tesla is working to set up a LFP battery plant in the US with CATL, ideally in Texas. This will allow it to source most of the minerals and battery components from North America, thus complying with the rules of origin. But the plant will take time to become operational, and 2024 is only months away.
Still, the situation could change starting next year. There is good news and bad news, with the former being that the tax credit will be applied at the point of sale instead of when filing taxes. This turns it into a discount for those who qualify, effectively lowering the price of electric vehicles. If the market conditions don't change, Tesla will benefit even more. The bad news is that the value of the tax credit might not stay the same for all Tesla vehicles.
The EV maker warned potential buyers to expedite their purchase because the federal tax credit will likely decrease after December 31. Based on the change operated on the Model 3 landing page, Tesla expects the compact executive sedan to be primarily affected. It's unclear whether Model Y will lose part of its tax credit. On the one hand, Tesla's homepage indicates that all qualifying models could lose the full tax credit. On the other hand, the Model Y landing page doesn't mention any change to the IRA program. Time will tell.
Tesla doesn't explain why the tax credit will be reduced next year, which made some people believe this is just a sales tactic to accelerate the Model 3 sales. This could be true, considering that Tesla is preparing to launch the refreshed Model 3 this fall. Still, there's another detail affecting the tax credit amount, and this is out of Tesla's control.
According to the Inflation Reduction Act and subsequent modifications, the rules of origin that affect the battery materials and components are a moving target. With each year passing, the batteries should contain a higher percentage of the critical minerals mined in North America or a free-trade US partner. The percentage of battery components produced in North America is also increasing. For 2023, the thresholds were 40 and 50 percent, respectively. From January 1, 2024, they increase to 50 and 60 percent.
This means some Tesla models or variants could no longer qualify for the full $7,500 tax credit. The Model 3 RWD built with a lithium-iron-phosphate (LFP) battery supplied by China's CATL will undoubtedly be affected. Tesla is working to set up a LFP battery plant in the US with CATL, ideally in Texas. This will allow it to source most of the minerals and battery components from North America, thus complying with the rules of origin. But the plant will take time to become operational, and 2024 is only months away.
NEWS: @Tesla now states on their website that there will likely be reductions to the $7,500 EV tax credit in the US for eligible new Model 3 buyers after Dec 31, 2023. pic.twitter.com/1bqQczo7NU
— Sawyer Merritt (@SawyerMerritt) July 12, 2023
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