Tesla warns of reduction in federal tax credit for Model 3 in 2024

Tesla has updated its website to say that it expects a reduction in the U.S. federal tax credit for all Model 3 vehicle trims starting next year. This news comes just a month after Tesla made every Model 3 vehicle eligible for the full tax credit under the Inflation Reduction Act (IRA).

According to an update to the notice on the Design Studio, the $7,500 federal tax credit is still available for all Model 3 trims, but it now also indicates that reductions are likely after December 31.

Tesla has not provided any details on how it managed to get the Model 3 to meet the IRA requirements for the full tax credit. The tax credit eligibility comes from the Biden administration’s requirements that electric vehicles (EVs) eligible for the full credit must have specific quantities of components manufactured in North America and critical minerals sourced from the U.S. or specified countries, including Canada.

Those quantities will change on January 1, 2024, likely leading to Tesla posting this message to warn buyers preemptively.

Initially, the entry-level Rear-Wheel Drive (RWD) Model 3, which had a battery from China, did not qualify for the full tax credit. However, Tesla may have made changes to its supply chain to meet these requirements.

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