New US regulations on subsidies for goods produced in China will see the $7,500 reduction in the price of some Tesla Model 3s halved
Tesla’s Model 3 Rear-Wheel Drive and Long Range vehicles will lose up to $7,500 federal tax credit from the end of the year based on new guidance under the US Inflation Reduction Act, according to a message on the US automaker’s website late Tuesday (December 12). But there may still be some government cash support, around half according to industry calculations.
The US Treasury issued guidelines earlier this month detailing new battery sourcing restrictions that take effect on January 1 aimed at weaning the US electric vehicle supply chain away from China, according to Reuters.
Beginning in 2024, an eligible clean vehicle may not contain any battery components that are manufactured by “a foreign entity of concern” – China, Russia, North Korea and Iran – and beginning in 2025 an eligible clean vehicle may not contain any critical minerals that were extracted, processed, or recycled by a foreign entity of concern.
“Tax credit will end for Model 3 Rear-Wheel Drive and Model 3 Long Range on December 31, 2023 based on current view of new IRA guidance. Take delivery by December 31 for full tax credit,” the company said in a notice on theTesla US website last night.
In April this year, Reuters reported that the Treasury’s new guidelines will slash the credits for the EV maker’s Model 3 RWD by half to $3,750 but it said that other Tesla models will retain the entire benefit.
In July, Tesla said the $7,500 federal tax credits for its Model 3 electric vehicles are likely to be reduced after December 31, without elaborating on the reason.
The U.S. EV credit currently requires 50% of the value of battery components to be produced or assembled in North America to qualify for $3,750 of the credit and 40% of the value of critical minerals sourced from the United States or a country with which it has a free trade agreement.
Other carmakers such as Ford and GM expect to qualify for the entire tax credits for many of their EVs from next year, while Volkswagen remains ‘cautiously optimistic’.
BATTERY COMPONENT REQUIREMENT
To meet the battery component requirement and be eligible for a $3,750 credit, the applicable percentage of the value of the battery components must be manufactured or assembled in North America
- For 2023, the applicable percentage is 50 percent.
- For 2024 and 2025, the applicable percentage is 60 percent.
- For 2026, the applicable percentage is 70 percent.
- For 2027, the applicable percentage is 80 percent.
- For 2028, the applicable percentage is 90 percent.
- Beginning in 2029, the applicable percentage is 100 percent.
CRITICAL MINERAL REQUIREMENT
To meet the critical mineral requirement and be eligible for a $3,750 credit, the applicable percentage of the value of the critical minerals contained in the battery must be extracted or processed in the United States or a country with which the United States has a free trade agreement or be recycled in North America—as mandated by the Inflation Reduction Act.
- For 2023, the applicable percentage is 40 percent.
- For 2024, the applicable percentage is 50 percent.
- For 2025, the applicable percentage is 60 percent.
- For 2026, the applicable percentage is 70 percent.
- Beginning in 2027, the applicable percentage is 80 percent.
