Tesla has hinted at a potential cut to the federal tax credit for its buyers after December 31, 2023.
A late Tuesday update on the company’s website included a banner indicating “Reductions to current federal tax credit likely after Dec 31.”
The current policy allows customers, who take delivery of a qualified new Tesla vehicle and meet all federal requirements, to be eligible for a tax credit of up to $7,500.
Tesla’s website also outlined the income limitations that apply to the tax credit. It stated that married couples filing jointly must have an adjusted gross income below $300,000, heads of households below $225,000, and all other filers below $150,000.
Moreover, Tesla has set price caps for its vehicles to qualify for the credit. The Model 3 must not exceed $55,000, and the Model Y must be under $80,000 at the time of delivery. These prices incorporate optional equipment physically attached to the vehicle at the time of delivery and exclude software features, accessories, taxes, and fees.
You can see the change up in the header mention on Tesla’s website below:
Under requirements, the electric vehicle (EV) credit stipulates that for a vehicle to qualify for $3,750 of the credit, at least 50% of the value of its battery components must be produced or assembled within North America.
Moreover, 40% of the value of critical minerals used in the batteries must be sourced from the United States or countries with which it has a free trade agreement. These proportions are set to increase by 10 percentage points each year.
From 2024, the government will disqualify vehicles with battery components supplied by “foreign entities of concern” from receiving tax credits. Starting 2025, to be eligible for the tax credit, a vehicle should not contain any critical minerals that have been extracted, processed, or recycled by such foreign entities. The Treasury is expected to issue guidance this year specifying the scope of these restrictions.
This comes as Tesla plans a significant design overhaul for its Model 3 later this year, which currently uses batteries from CATL and Panasonic. The implications of these changes on Tesla’s operations remain to be seen.
Tesla advises that eligibility for these tax credits depends on the buyer’s personal tax situation and recommends consulting a tax professional for guidance. The potential reduction to the tax credit comes as an important notice for prospective Tesla buyers as the year comes to a close.
