Tesla Signals Impending Loss of Half its Tax Credit in the US for Model 3

By Better Today On Dec 4, 2023

TL/DR –

The federal tax credit funded through the Inflation Reduction Act will reduce from $7,500 to $3,750 by January 1, 2024, for Tesla’s Model 3 variants. This is due to Tesla’s inability to meet sourcing requirements under the Act, particularly concerning batteries sourced from foreign entities of concern (FEOCs) like China, Russia, North Korea, and Iran. Tesla has also mentioned that complete tax credit will only apply to deliveries made through December, possibly as a strategy to boost end-of-year sales and meet its anticipated target of selling 1.8 million vehicles.

Federal Tax Credit Reduction for Tesla Model 3

The Inflation Reduction Act’s federal tax credit, currently taking up to $7,500 off the cost of Tesla’s Model 3, is set to halve. As of January 1st, 2024, the tax credit for Model 3 Rear-Wheel Drive and Model 3 Long Range will drop to $3,750, warns Tesla.

Tesla’s Announcement

Tesla communicated this news via an announcement on their website, as reported by TechCrunch. The Model 3, which has the lowest price among Tesla vehicles, starting at about $36,000, will only carry the full tax credit for deliveries made through December.

Possible Challenges Under Inflation Reduction Act

Tesla seems to be facing challenges meeting the sourcing requirements under the Inflation Reduction Act (IRA), which could impact tax credits for the Model Y and Model X next year.

New Guidelines

Starting next year, guidelines state that an eligible clean vehicle may not contain any battery components manufactured or assembled by a foreign entity of concern (FEOC), according to the Department of Energy. The DOE clarifies FEOCs as entities under the jurisdiction or direction of governments including China, Russia, North Korea, and Iran.

Tesla’s Motivation for Customer Warning

Another reason for Tesla’s early warning about the tax credit reduction is to boost end-of-year sales. Tesla traditionally aims to deliver as many cars as possible before the new year to meet delivery targets. This year, Tesla projects sales of 1.8 million vehicles.