Base Model 3 tax credit slashed 50% as Tesla cuts pricing to compensate

Tesla keeps playing yo-yo with the pricing of its electric vehicles as it just put new, lower tags on all four models in its portfolio. The high-end Tesla Model S and Model X are now US$5,000 cheaper, at US$84,990 and US$94,990, while the midrange Model Y SUV price got cut by US$2000 down to US$49,990.

After starting a veritable price war in the EV realm with up to 31% cuts in January, Tesla said it will react to the changing supply and demand dynamics with more frequent price changes. This resulted in several small moves, some in US$500 increments, but today's price cuts are the first significant ones after the big slash at the beginning of the year.

The most interesting move is happening with the Model 3, which is now sold for US$41,990, or a grand down from yesterday's tag. That's the least significant price decrease compared to the other models, and not only because the Model 3 is currently Tesla's cheapest car.

Tesla changed the warning that the base Model 3 RWD version won't be eligible for federal tax credits after April 17. When the Treasury came out with its battery material sourcing and assembly guidelines last week, it looked as if the Model 3 RWD won't qualify since it is powered by LFP batteries made by CATL.

Now, however, Tesla says that the Model 3 will still get half of the full US$7,500 subsidy amount, even after a list of eligible vehicles based on the Treasury's guidelines is published on April 17:

Customers who take delivery of a qualified new Tesla and meet all federal requirements are eligible for a tax credit up to $7,500. Based on new IRS guidance, the $7,500 credit will be reduced for Model 3 Rear-Wheel Drive on April 18 to $3,750.

With today's Model 3 price cut, and the US$3,500 tax credit, potential buyers can have Tesla's cheapest vehicle at US$37,990. That is still a pretty good deal compared to the exorbitant prices that Tesla vehicles commanded just last year, and will increase the gap with the Performance model which would've otherwise shrunk to just US$5,000 or so.

Still, the US$1,000 Model 3 price cut is likely aimed at those looking to grab the electric sedan before the full US$7,500 tax credit runs out in ten days or so. For them, the price of a Tesla Model 3 will now be just US$34,990, or only a tad above its presumed production cost thanks to the government's generosity.

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