Tesla is officially losing half $7,500 tax credit on two Model 3 trims

Tesla has confirmed that it is officially losing half of the $7,500 tax credit on two Model 3 trims starting next year.

Buyers of all Model 3 vehicles, depending on their own eligibility based on income, have had access to a $7,500 federal tax credit since the reform of the electric vehicle incentive program that was implemented in 2023.

Now, buyers are not the only ones with eligibility criteria. The electric vehicles also need to be eligible based on things like price and source of components.

The component criteria, and especially the battery material criteria, are changing every year and becoming stricter to include more batteries and materials built in North America.

With the sticker criteria starting next year, Tesla has warned that it expects to lose part of the tax credit on some Model 3 models.

Today, in an overnight update to its online design studio, Tesla has confirmed that Model 3 Rear-Wheel-Drive and Model 3 Long Range will see their tax credit reduced to $3,750:

“Customers who take delivery of a qualified new Tesla and meet all federal requirements are eligible for a tax credit up to $7,500. Tax credit will reduce to $3,750 for Model 3 Rear-Wheel Drive and Model 3 Long Range on Jan 1, 2024. Take delivery by Dec 31 for full tax credit. Only for eligible cash or loan purchases.”

Tesla doesn’t elaborate on why it will lose the credits on those models, but it is believed to have to do with the origin of some battery components.

The change also comes with the tax credit becoming available as a “point-of-sale” incentive – meaning that it can be directly applied at the purchase of a vehicle rather than returned as a tax credit.

Electrek’s Take

This is going to be helpful for Tesla in Q4. The automaker is trying to hard to sell a record number of vehicles this quarter to deliver on its annual guidance.

In the US, it was working against the tax credit going to become a point-of-sale in January, but this should help make people pull the trigger on those versions of the Model 3.

Now, it would be interesting to learn the exact reason why those versions won’t get the tax credit. It was believed to have to do with Tesla using Chinese LFP cells, but if that is the case, it isn’t clear why they were getting the full credit in the first place this year even before the eligibility criteria became stricter.