How Tesla Can Make All Model Y Trims Qualify for Federal Tax Credits

Courtesy of Tesla, Inc.

Under U.S. President Joe Biden’s recently-signed Inflation Reduction Act (IRA), passenger electric vehicles (EVs) can qualify for a tax credit of up to $7,500 USD. The eligibility criteria for these tax credits, however, have left Tesla’s Model Y at a slight disadvantage.

While the seven-seat variant of the Model Y qualifies for the federal tax credits offered under the IRA as of January 1, 2023, the five-seat version of the Model Y doesn’t.

This has to do with the incentive program only classifying the seven-seat Model Y as an “SUV,” even though it’s structurally almost identical to the five-seater. Tax incentive eligibility for non-SUVs is capped at an MSRP of $55,000, which the Model Y exceeds.

One Twitter user on Sunday explained in a series of tweets why the two Model Y variants are treated differently by the IRA and what Tesla could do to make all Model Y trims eligible for the $7,500 tax credit.

“The IRA splits EVs into 2 categories “other” and truck/van/SUV. This is key because “other” autos only qualify for the tax credit if MSRP (plus options) is under $55k while SUVs/Vans/Trucks may be priced up to $80k while still qualifying for the $7500 rebate,” explained @BullAdamJonas.

The IRA splits EVs into 2 categories “other” and truck/van/SUV. This is key because “other” autos only qualify for the tax credit if MSRP (plus options) is under $55k while SUVs/Vans/Trucks may be priced up to $80k while still qualifying for the $7500 rebate.

— Bullish Adam Jonas (@BullAdamJonas) January 1, 2023

According to them, the only requirement for the “SUV” classification that the five-seat Model Y doesn’t meet is a running clearance of 7.9 inches (or 20cm). “Model Y clearance is already 6.8” so only a 1.1” raise is needed assuming angular requirements will then also be met.”

Of course, all non-eligible Model Y trims would need a new suspension to achieve higher running clearance. The Twitter user estimated that a new suspension would only increase Tesla’s bill of materials for each unit by less than $100, but they weren’t able to gauge the one-time cost of the tooling and engineering that would go into implementing such a solution in Tesla’s factories.

Volkswagen reportedly did something similar for the 2023 ID.4 Pro S and 2023 ID.4 Pro S AWD, increasing the Gross Vehicle Weight Rating (GVWR) for both vehicles to 6,043 lb and raising their clearance to 8 inches to qualify them for the IRA’s EV incentives as SUVs with an upper MSRP limit of $80,000.

Per recent reports, Tesla is gearing up to launch a new Standard Range AWD trim of the Model Y with next-generation 4680 batteries in the U.S. sometime this year. Over the weekend, a Tesla Model Y AWD was spotted in the code for Tesla’s U.S. website with a price tag of $61,990.