Model Y Juniper tax credit in jeopardy as Tesla approves of new government plan to end EV subsidies

Tesla sells about half of all electric vehicles in the US, and the government spends about $200 million a month for subsidies that go up to $7,500 in tax credits for a Model Y, including its Juniper facelift that is expected to arrive next quarter.

What's more, President Biden administration's Inflation Reduction Act (IRA) that introduced those tax credits is now applying them directly at the point of sale as an immediate price reduction, making Tesla's bestselling vehicle irresistible at a $37,490 starting price.

Tesla also subsidy-proofed all of its Model 3 and Model Y versions, removing some base RWD variants with Chinese LFP batteries that didn't qualify, and leaving only long-range models with Panasonic or LG batteries that do.

The Model Y's tax credit party may be coming to an end, though, as several insider reports claim that Trump's energy transition team will be ending the EV subsidies stipulated in the IRA as one way to pay for the upcoming extension of Trump's corporate tax cuts.

Headed by oil magnate Harold Hamm and Trump's Interior Secretary pick Doug Burgum, the energy policy transition team plans to axe government subsidies for "mature" renewable energy industries like wind and solar, along with the popular $7,500 electric vehicle discount.

At the same time, Hamm plans to decrease oil and gas drilling regulations, as well as lift the ban on LNG exports. The IRA's tax credits for nascent technologies like carbon capture and storage, where Hamm's Continental Technologies has a vested interest in, are likely to stay.

Elon Musk is on record saying that Tesla doesn't need tax credits, and their removal may hurt it in the short term somewhat, yet will "devastate" other EV makers:

I guess that there would be some impact, but I think it would be devastating for our competitors and for Tesla slightly... But long term, this probably actually helps Tesla.

He may now have a chance to witness the veracity of that claim during the term of the new White House administration. Trump's energy policy team reportedly met with Tesla representatives, who advised that they wouldn't be against the removal of the Model 3 and Model Y tax credit subsidy.

While that may sound counterintuitive at first, Tesla has a lower cost basis than the major EV makers in the US that happen to be legacy auto manufacturers as well. Its cars cost less than $30,000 to make on average, while Ford or GM spend $17,000 more to make each EV they sell at a loss. Even legacy ICE vehicles cost $40,000 to manufacture on average, so Tesla can maintain lower prices longer than legacy automakers' EV divisions can stay solvent.

In the end, the removal of the tax credit subsidy for the Model Y and Model 3 may prove beneficial for Tesla indeed, as it is likely to expand its share in what might become a smaller market pie.

It is not clear what the Trump team's energy policy will be towards EV battery subsidies, though. Currently, the government doles out $35 per kWh of made-in-US battery capacity, which Tesla banks on to make its 4680 battery cost competitive in comparison with its suppliers Panasonic or LG.

If that subsidy is removed as well, its revolutionary dry cathode mass production method may not be enough to bring 4680 cell costs down to the 50% reduction level envisioned during Tesla's Battery Day.

This, in turn, could jeopardize Tesla's plans to place cheap 4680 batteries in everything it makes in the US, from the Cybertruck and the Model Y Juniper, to the upcoming Robotaxi, in order to reap the IRA's tax credit benefits.

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