Some Tesla Model 3s Losing EV Tax Credit Eligibility, Other EVs at Risk
The new year is a catalyst for, well, a lot of newness. In the case of electric vehicles, the new year ushers in revised tax credit rules, and some models will no longer be eligible for the federal incentive of up to $7,500.
Related: What Does the EV Tax Credit Overhaul Mean for Car Shoppers?
The Revised Rules
To recap: Updated federal EV tax credit eligibility qualifications went into effect in April under the Inflation Reduction Act. The changes removed the 200,000-unit sales cap on EVs for automakers and added new rules, such as a minimum battery size of 7 kilowatt-hours; price caps of $55,000 for cars, wagons and hatchbacks and $80,000 for SUVs; and household income limitations under $300,000 for joint filers, $225,000 for heads of households and $150,000 for individuals.
In 2024, those qualifications are joined by stricter battery restrictions that require automakers to manufacture EV battery packs in North America and to source a minimum of 50% of the battery’s key materials from the U.S. or from countries with which we have free-trade agreements (not China).
Vehicles are eligible for a $3,750 incentive for a vehicle’s battery production location and another $3,750 for its materials sourcing location for a total of $7,500. If a vehicle meets just one criteria, the credit is reduced to $3,750. If it fails to meet either criteria, it is not eligible for any tax credit.
Tesla Model 3
Tesla has announced that its Model 3 sedan is one such vehicle, though not all variants are disqualified. According to an announcement on Tesla’s website, the credit “will end for Model 3 Rear-Wheel Drive and Model 3 Long Range on Dec. 31, 2023, based on current view of new [Inflation Reduction Act] guidance. Take delivery by Dec. 31 to qualify for full tax credit.”
The Model 3’s base RWD and long-range variants’ batteries will no longer qualify for a credit because they don’t meet the requirements for the component sourcing. However, the battery in the Model 3 Performance version meets all requirements and will still be eligible for the credit.
This obviously affects Model 3 prices dramatically. Currently, a base Model 3 starts at $32,880 including the tax credit (all prices also include destination); that price jumps to $40,380 come Jan. 1. That puts the Model 3 in close competition with the larger and more popular Model Y SUV, which starts at $45,380 and gets down to $37,880 after the tax credit.
According to Tesla, other models will continue to be eligible for the full $7,500 tax credit in 2024, including:
- Model X Dual Motor
- Model Y Rear-Wheel Drive
- Model Y Long Range
- Model Y Performance
What About Other Vehicles?
Ford announced earlier in December that it expects the Mustang Mach-E to lose its federal tax credit beginning in January. As for other EVs, the EPA has not yet come out with a list of vehicles that will still qualify for the credit after Jan. 1; stay up to date with the EPA’s list here.
The updates to credit eligibility aren’t over, either. In 2025, the required percentages of domestic battery content will rise again, incentivizing automakers to continue to adjust vehicle battery production and materials sourcing to be more U.S.-focused.
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