Cheapest Tesla Model 3 trims to lose all tax credit discount in 2024 over Chinese CATL batteries

While slashing the Model 3 tax credit by half not long ago was bad, not getting any federal subsidy is worst, and it seems that this is precisely what will happen in a few weeks. Only the Model 3 Performance trim will remain eligible for some amount of tax credit in 2024, Tesla now warns.

It has changed the verbiage on its website to reflect that "$7,500 tax credit will end for Model 3 Rear-Wheel Drive and Model 3 Long Range on Dec 31, 2023." Previously, this text read "$7,500 tax credit will reduce to $3,750 for Model 3 Rear-Wheel Drive and Model 3 Long Range on Jan 1, 2024," so Tesla's push to hit the order button and take delivery before December 31 now seems all the more urgent.

Tesla was in that boat at the beginning of the year, when an American Vehicle Security Act outcry by Senator Joe Manchin and others warned that the US is being overly generous with EV subsidies for cars with de facto Chinese batteries like the Model 3. The Treasury Department guidelines in the spring, however, restored eligibility for the tax credit amount to all of its vehicles, while subsequently Tesla managed to convince the government that, when spread across its fleet, the amount of China-sourced raw materials in its batteries is below the 40% threshold for 2023.

Next year, however, that threshold will rise to 50% of battery raw materials that have to be sourced either from the US, or a handful of free-trade partners that excludes China. Unfortunately, according to the newest federal guidelines, Tesla will have a hard time convincing anybody that the CATL or BYD batteries in its bestselling Model 3 and Model Y vehicles come with 50% raw materials that aren't sourced from China.

In any case, the $50,990 purchase price of the Model 3 Performance trim could very well now fall below that of the Model 3 Long Range model when the federal tax credit is deducted, which would make for an interesting case scenario early next year when Tesla is expected to release the Model 3 Highland facelift in the US as well.

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