American leading automaker Tesla declared that the base trim Tesla Model 3 RWD’s full claim for the $7,500 federal tax credit under the Inflation Reduction Act might drop by March 31, per the automaker’s official website.
“On January 1, 2023, the Inflation Reduction Act of 2022 qualified certain electric vehicles (EVs) for a tax credit of up to $7,500. This $7,500 credit is anticipated to be reduced for Model 3 Rear-Wheel Drive by March 31, 2023.
Note: This credit is in effect for deliveries taken before an update to the federal guidance, which Treasury and the IRS intend to issue no later than March 31, 2023.”
Tesla
With the given deadline for full eligibility, Tesla has reportedly been urging customers to accept delivery earlier than anticipated.
What affected Tesla Model 3’s full eligibility for the federal tax credits?
Tesla equips most of its Model 3 units with China-made prismatic li-ion LFP battery cells from its major supplier CATL.
Meanwhile, other Tesla Model 3 and Y cars utilize North American-made cylindrical li-ion cells (NCA/NCM chemistry).
As we all know, the IRA strictly requires that 40% of critical minerals must be mined or processed in the US (or FTA nations) or recycled in North America. Apart from that, the law also mandates that 50% of the battery components must be produced or assembled in the region as of 2023.
However, it must be noted that these percentages will further increase in the coming years, per the Fact Sheet IRA EV Tax Credits published by Electrification Coalition and SAFE.
All that said, Tesla must adhere to the mentioned standards set by the IRA to qualify for the full tax credit of $7,500. However, it will drop to $3,750 if it only meets one requirement. If none, then the Tesla Model 3 would not receive any tax credits from the government.
Given that Tesla anticipates the Model 3’s eligibility to be “reduced,” it is safe to say that it will likely meet one of the requirements for a $3,750 tax credit.
IRA’s requirements for the federal tax credits as of now
The IRA offers federal tax credits of up to $7,500 per electric vehicle, depending on its eligibility on the set critical mineral and battery component requirements:
| Federal Tax Credits | |
| EVs adhering to both requirements (mentioned above) | $7,500 |
| EVs adhering to only one requirement | $3,750 |
| EVs that do not meet requirements | $0 |
As for the MSRP price limits, below are the standards for each category:
| MSRP price limits | |
| SUVs, vans, pick-up trucks | $80,000 |
| Other Vehicles (cars) | $55,000 |
Furthermore, the IRA also requires the following income caps for various tax statuses:
| Income limits | |
| Single | $150,000 |
| Head of HH | $225,000 |
| Filing jointly | $300,000 |
See Also:
- Tesla Model 3 has the highest used car discount
- Tesla Model 3 experiences the highest price drop for its used car in this year
- The City of Venice to test the cost-effectiveness of the Tesla Model 3 fleet
- Tesla Model 3 & Y qualify for California’s USD2,000 rebate
- 2023 Tesla Model 3 – Review, Pricing, and Specifications
Undoubtedly, the Tesla Model 3 RWD’s ability to thrive against rivals will be hampered by a lesser incentive.
As of March 30, 2023, the Tesla Model 3 trim costs are as follows (plus a $1,390 DST fee and $250 Order Fee):
| Model | Base Price | Dest. Charge | Tax Credit | Effective Price |
| 2023 Tesla Model 3 RWD 18-inch | $42,990 | +$1,640 | $7,500 | $37,130 |
| 2023 Tesla Model 3 RWD 19-inch | $44,490 | +$1,640 | $7,500 | $38,630 |
| 2023 Tesla Model 3 Long Range AWD 18-inch | ||||
| 2023 Tesla Model 3 Long Range AWD 19-inch | ||||
| 2023 Tesla Model 3 Perf. LR AWD 20-inch | $53,990 | +$1,640 | $7,500 | $48,130 |
You can access the full details regarding the credits for new clean vehicles bought in 2023 or beyond here.
