Tesla Warns Model 3 Federal Tax Credit Will “Likely” Be Reduced In 2024

Tesla has updated its Model 3’s ordering website for the United States, pointing out a potential change in the federal tax credit.

As of today, all versions of the Tesla Model 3 and Tesla Model Y qualify for the $7,500 federal tax credit under the Inflation Reduction Act of 2022 (IRA). The Model S and Model X are not qualified because they exceeding the price cap.

However, according to the latest update, Tesla expects that after December 31, 2023, the amount of the federal tax credit for the Model 3 will be reduced.

The brief info does not explain what the reason is nor whether we are talking about all versions or only some versions. Additionally, the same does not concern the Model Y.

“$7,500 Federal Tax Credit

All new Model 3 vehicles currently qualify for a federal tax credit for eligible buyers. Reductions likely after Dec 31.”

That’s a very interesting move, because as we understand – a manufacturer does not have any obligations to inform its customers about such potential changes months in advance.

This is why we can guess that Tesla simply intends to prompt some undecided buyers to consider purchasing in the second half of the year, boosting its sales.

Let’s now stop and think about what will change in 2024, thus making it so the car does not qualify for the full $7,500 amount. Well, if the amount is reduced, rather than eliminated, then it’s most likely related to the battery-related requirements.

Battery requirements in 2023:

• Critical minerals ($3,750): 40% of the value of critical minerals need to be mined or processed in the United States (or FTA countries), or recycled in North America
• Battery components ($3,750): 50% of the value of battery components must be manufactured or assembled in North America

In 2024, the requirements will be 50 percent of the critical minerals and 60 percent of  battery components. We assume that Tesla might have an issue with one of the two categories, which would cause the reduction from $7,500 to $3,750.

Some say that the whole issue might be related to the upcoming introduction of the revamped Tesla Model 3 (code name Highland). There was a rumor about a new battery type for this model in China.