The cheapest Tesla's U.S. federal tax credit will be halved as early as 2024. This means that Americans who are interested in purchasing the popular Model 3 will no longer be able to save $7,500.
This was confirmed as the Biden Administration made efforts to limit Chinese battery components in U.S.-manufactured electric vehicles. Elon Musk's EV company already started warning its consumers regarding this change.
On Monday, Dec. 4, Tesla announced that the Inflation Reduction Act credit for Model 3, as well as the EV's long-range variant, will be reduced to $3,750.
If you are among the interested Tesla Model 3 buyers, here's what you need to know about this U.S. federal tax credit adjustment.
Cheapest Tesla's US Federal Tax Credit Will Be Halved in 2024
The U.S. federal tax credit for the Tesla Model 3 and its long-range variant will be adjusted starting on January 1, 2024. Because of this, the American EV maker is urging interested buyers to ensure that they will take deliveries on or before Dec. 31.
"Tax credit will reduce to $3,750 for Model 3 Rear-Wheel Drive and Model 3 Long Range on Jan 1, 2024. Take delivery by Dec 31 to qualify for the full tax credit," said Tesla via its official website.
Tesla also advised buyers to speak with a tax professional for guidance since being eligible for the U.S. federal tax credit will depend on their personal tax situations.
According to Yahoo News' latest report, Tesla was able to include its rear-wheel-drive Model 3 in the full Inflation Reduction Act credit because it conducted changes in suppliers and materials to meet the Biden Administration's guidelines.
Now, it looks like Tesla needs to make new business adjustments to maintain at least half of the U.S. federal tax credit since experts claim that the entire benefit could be removed before 2025.
Why US Adjusts EV Tax Credit
The U.S. Treasury Department recently announced that the IRA credit will soon involve new foreign entity of concern requirements (FEOC).
Officials explained that starting in 2024, the full EV tax credit will only apply to electric vehicles that no longer have battery components made by an FEOC; China, Russia, North Korea, and Iran.
"Beginning in 2025, an eligible clean vehicle may not contain any critical minerals that were extracted, processed, or recycled by a FEOC," said the U.S. Department of Treasury.
The financial agency further stated that EV manufacturers in the U.S. should continue meeting additional statutory criteria, such as undergoing final EV assembly in North America, as well as additional sourcing requirements for critical minerals and battery components.
They should also not exceed a Manufacturers Suggested Retail Price of $80,000 for pickup trucks, sport utility vehicles, and vans. When it comes to other EVs, they shouldn't exceed $55,000.
