Tesla’s Model 3 Rear Wheel Drive and Model 3 Long Range vehicles will no longer qualify for the full $7,500 federal tax credit for eligible EV purchases from next year.
The EV giant announced on its website that from 1 January 2024, the tax credit for the two variants of the Model 3 will be halved to $3,750.
Tesla did not explain the reason for the tax credit reduction and did not immediately respond to FOX Business’ request for comment. However, the warning comes after the Biden administration released updated guidance last week to help automakers and consumers determine which electric vehicles (EVs) are eligible for tax credits under the 2022 Inflation Reduction Act (IRA).
According to Inside EVs, Tesla had posted a similar notice on its Model 3 page since July, warning customers that cuts to the federal EV tax credit could come in 2024, but the previous message did not specify which model variants might be affected.
The Treasury guidance, released on Friday in conjunction with the White House Office of Clean Energy Innovation and Implementation and the Department of Energy, specifically defines the term “foreign entity of concern”.
Under the IRA, EVs are prohibited from receiving the $7,500 federal credit if they are assembled with battery components or critical minerals sourced from such a foreign entity of concern (FEOC) beginning in 2024 and 2025.
The new IRS guidance states that to qualify for the $3,750 tax credit, a certain percentage of the value of an EV’s battery components must be manufactured or assembled in North America, and a certain percentage of the value of the critical minerals contained in the battery must be mined or processed either in the US or by a country with which the US has a free trade agreement, as required by the IRS.
“Now the new tax rules are clear, and the Model 3 RWD and LR are likely to be penalised because their battery packs contain components from a so-called ‘foreign entity of concern’ – in this case, China,” Inside EVs reported.
