Model Y lease payments set to rise as Tesla loses the federal tax credit discount

Tesla may experience a boom in new Model Y sales in the second half of the year, as covering its down payment with the federal tax credit or reducing monthly outlays while leasing may no longer be options in 2026.

The Republican "One Big, Beautiful Bill" tax plan will roll back the clean energy credits and tax breaks included in the Biden administration's Inflation Reduction Act. In the new GOP bill, extending the tax cuts enacted during Trump's first term will be partially offset by ending the federal tax credit for new and used electric vehicles.

There will be no more $4,000 discounts for second-hand electric cars starting in 2026, while the $7,500 new EV tax credit for private buyers will be valid only for manufacturers that have sold less than 200,000 vehicles so far.

2026 Tesla Model Y price

Needless to say, Tesla won't qualify for the 2026 federal subsidy exemption, since it is the world's second-largest EV maker after BYD now, and sells more than any other electric car manufacturer in the US. In short, starting January 1, 2026, the new Model Y will no longer be eligible for the $7,500 in federal tax credit that it currently enjoys.

What's more, the government will be nixing the $7,500 commercial electric vehicle tax credit in order to pay for extending the 2017 tax cuts, too. This may have the biggest impact on Model Y buyers, as the vast majority of electric vehicles in the US are now leased. Instead of passing the commercial EV tax credit directly to the buyer in the form of discounted down or monthly payments, automakers and dealers will have to charge them full MSRP after December 31 if the bill passes as it is.

At the current $44,990 starting price for the base version, that's more than a $100 difference in the RWD Model Y monthly payment. For the Model Y AWD that now enjoys an APR financing deal, the difference in monthly payments will be even starker, about $150 more.

Tesla may thus face a demand problem, as none of its vehicles will qualify for the federal tax credit next year. Even the Cybertruck, whose sales are way below the 200,000 unit threshold at the moment, won't qualify as the bill takes a manufacturer's shipments as a whole.

At last count, the government was spending about $200 million a month to subsidize the price of the Tesla Model Y and other electric vehicles from various manufacturers, but that largesse may be coming to an end in 2026.

Back in November, Elon Musk shrugged the potential removal of EV tax breaks, saying that the move won't affect Tesla all that much. "I guess that there would be some impact, but I think it would be devastating for our competitors," he said. "Long term, this probably actually helps Tesla," added Musk, but, given the current slump in demand for Tesla vehicles, that claim may soon be put to the test.

Tesla would have to either cut prices, launch new vehicles like the rumored cheaper, more compact Model Y, or prepare for the inevitable demand destruction that the premature removal of the federal tax credit would bring.

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