EV tax credit reduced for select Tesla models in 2024

Tesla’s Model 3 Rear-Wheel Drive and Model 3 Long Range vehicles will no longer be eligible for the full $7,500 federal tax credit for eligible EV purchases starting from January 1, 2024. The EV giant announced on its website that the tax credit for these two variants of the Model 3 will be reduced to $3,750.

Although Tesla did not provide an explanation for the reduction in the tax credit, it is worth noting that this announcement comes after the Biden administration released updated guidance aimed at determining which electric vehicles are eligible for tax credits under the 2022 Inflation Reduction Act (IRA).

According to Inside EVs, Tesla had previously posted a notice on its Model 3 page since July, warning customers that reductions in the federal EV tax credit could be expected starting in 2024. However, the previous message did not specify which model variants would be affected.

The Treasury Department, in collaboration with the White House Office of Clean Energy Innovation and Implementation and Energy Department, released new guidance that defines the term “foreign entity of concern.” Under the IRA, EVs will no longer qualify for the $7,500 federal credit if they are assembled with battery components or critical minerals sourced from such a foreign entity of concern, starting in 2024 and 2025 respectively.

The new IRA guidance states that for an EV to be eligible for a $3,750 tax credit, a certain percentage of the value of the EV’s battery components must be manufactured or assembled in North America. Additionally, a certain percentage of the value of the critical minerals contained in the battery must be extracted or processed in the U.S. or by a country with which the U.S. has a free trade agreement, as required by the IRA.

Inside EVs reported that the Model 3 RWD and LR are likely penalized by the new tax rules because their battery packs contain components from a “foreign entity of concern,” specifically China.

It is important to note that this report includes contributions from FOX Business’ Thomas Catenacci.