(Credit: Chloe Albanesius)
The two cheapest trims of the Tesla Model 3 will no longer qualify for the $7,500 federal tax credit next year. That includes the rear-wheel drive and long-range variants, which start at $38,990 and $45,990, respectively.
Some reduction in tax credit eligibility was expected, though initially Tesla thought the Model 3 would still qualify for half the credit, or $3,750. However, it now says it will lose all eligibility for any deliveries received after Jan. 1, 2024.
The delivery timeline for the Model 3 still says "Dec. 2023" on the configuration page, and Tesla provided a link to immediately available inventory. But with just a few weeks left in the year, buyers who are banking on that credit will want to order one soon.
The Tesla Model Y is also likely to see some reduction in tax credit eligibility next year, per the website, though Tesla has not communicated how much.
There are also income requirements to qualify for the credit, and the vehicle itself must also meet a set of specifications. It must be made in the US, which Tesla satisfies, and it also must have a certain percentage of US-sourced battery materials. That's where these models fall short.
Tesla began swapping in Chinese-sourced LFP batteries in its base Model 3 earlier this year, which is likely the reason it lost the credit. For any models that lose a portion or all of the credit, it can be assumed that it's because of the battery, as those eligibility requirements are the toughest for automakers to achieve.
For vehicles that still qualify, the tax credit process will improve in 2024. Rather than waiting to get the credit when filing annual taxes, buyers will be able to get it immediately when purchasing the vehicle in the form of a discount.
Eligibility could still change in 2024, and it's possible Tesla communicated the loss of the credit as a sales tactic to create urgency. (Last year, it offered discounts on cars delivered by 2023.) However, the company has steadily incorporated more Chinese-sourced materials over the past year as cost-cutting measures, so that seems unlikely.