Tesla Model 3 Highland may see 50% tax credit reduction just as Treasury decides to pay EV buyers in advance

Tesla has changed the new EV tax credit reduction language for the Model 3 to reflect that it will become ineligible for US$3,750 in government subsidies. Whereas before it said "reductions are likely after Dec 31," the tax credit blurb now says that "$7,500 tax credit expected to reduce to $3,750 on Dec 31 pending federal guidance."

Coincidentally, the Model 3 Highland refresh which is slated for US release early next year may fall a victim of the reduced tax credit amount, too. 

After cutting the Model 3 and Model Y prices this week, Tesla now urges buyers to "take delivery to guarantee full incentive." Tesla’s current market share slump to a new low of 50% may be behind this tax credit language change, as it tries to queue as many orders for the last subsidy-eligible quarter as possible.

The base Tesla Model 3 uses Chinese LFP cells by the world’s biggest EV battery maker CATL. Despite that, Tesla managed to distribute the share of Chinese raw materials in its battery assemblies across its fleet to stay under the government’s 40% threshold for tax credit eligibility. Next year, however, that threshold rises to 50%, and the base Model 3 will evidently only get the local battery pack assembly subsidy.

Any potential demand reduction that the Model 3 tax credit loss might bring, however, could be partially offset by the Treasury Department's recent change in subsidy guidelines in favor of advance payment.

Instead of waiting to get the government subsidy after they file their taxes, in 2024 new EV buyers will be able to deduct it directly at the point of sale. Unfortunately, the EV tax credit income limits stay the same, so those who earned above the government's threshold - $150,000 for individuals or $300,000 for couples filing jointly - will have to repay the EV tax credit when they file their taxes.

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