The federal tax credit for certain Tesla Model 3s will be reduced by 50% in 2024

The federal tax credit for certain Tesla Model 3s will be reduced by 50% in 2024

Starting January 1, 2024, Tesla's Model 3 Rear-Wheel Drive and Model 3 Long Range won't qualify for the full $7,500 federal tax credit for eligible EV purchases. Instead, the tax credit for these models will be reduced by 50%, down to $3,750. Tesla had hinted at potential reductions in the federal EV tax credit on its Model 3 page since July but had not previously specified which model variants might be affected. The reasoning behind the reduction in the tax credit hasn't been explained by Tesla, and they haven't provided immediate comments on the matter following the recent guidance released by the Biden administration regarding EV tax credits under the 2022 Inflation Reduction Act.

President Biden previously set a goal of ensuring 50% of car purchases are electric by 2030. His administration has pursued aggressive regulations that target future gas-powered cars.

President Biden aimed to ensure that half of all vehicle purchases would be electric by 2030. To achieve this, his administration pursued stringent regulations specifically directed at future gas-powered cars.

The recent guidance from the Treasury Department, working alongside the White House Office of Clean Energy Innovation and Implementation and the Energy Department, specifically outlines the definition of a "foreign entity of concern."

According to the updated rules under the IRA, electric vehicles (EVs) will be ineligible for the $7,500 federal credit if their battery components or critical minerals come from a designated foreign entity of concern (FEOC) starting in 2024 and 2025, respectively. The new guidance mandates that for a $3,750 tax credit, a certain proportion of an EV's battery components' value must be manufactured or assembled in North America. Additionally, a specific percentage of the critical minerals within the battery should be extracted or processed either in the U.S. or by a country with a free trade agreement with the U.S., as per the IRA requirements.

According to Inside EVs, the updated tax regulations now provide clarity, suggesting that the Model 3 RWD and LR might face penalties because their battery packs incorporate components from a labeled "foreign entity of concern," specifically China.


---------This article is partly excerpted from For Business.

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