The US federal tax credits for the two most popular Model 3 variants, the RWD (pictured above) and Long Range, will be cut in half as of January 1, 2024.
This reduction is due to new regulations regarding battery materials in EVs. Currently, these two Model 3 trims are eligible for up to $7,500 in tax credits. However, starting next year, they will only qualify for up to $3,750.
Tesla has confirmed this change on its customer website. Potential buyers can still receive the full tax credit if they take delivery of a new Tesla Model 3 RWD or Long Range by December 31.
On Friday, the Biden administration modified the rules regarding EV tax credit eligibility. The new rules are designed to restrict China’s role in the US EV supply chain. However, since the US produces very little of the raw materials needed for EVs (including lithium and graphite), the new rules are making the EV tax credit less generous.
Tesla hinted at these impending reductions to the federal tax credit on its Model 3 webpage since July. The company had mentioned that a decrease in the tax credit would probably occur in 2024. However, Tesla did not specifically identify which Model 3 variants would be affected.
Now, with the clarity of the new tax rules, it is evident that the Model 3 RWD and LR will face penalties due to components in their battery packs that originate from a “foreign entity of concern,” namely China.
In addition to qualifying for the full $7,500 tax credit, drivers who buy new Model 3s before the new year will get an additional perk. If the delivery is taken by December 31, customers will also enjoy six months of complimentary Supercharging, according to InsideEVs. This promotional offer aligns with Tesla’s efforts to reach its 2023 sales target of 1.8 million vehicles.
Tesla’s competitors are also likely to be harmed by the new rules. The Ford Mustang Mach-E will likely lose its entire tax credit, as Ford buys the Mach-E’s battery from Chinese supplier CATL.
The Biden administration could potentially reduce the tax credit even more in the future. West Virginia senator Joe Manchin, a member of Biden’s Democratic Party, has said that the new rules are still too soft on China.
Image Source: Out of Spec Dave