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MagyarTesla Model 3 tax credit lapse that made Model Y cheaper due to 60% non-American parts
The NHTSA just revealed why doesn't the 2024 Model 3 Highland qualify for the federal $7,500 new EV tax credit, even though it did just last year. It turns out that the Model 3 is the only Tesla vehicle below the government's made-in-US subsidy requirement thresholds as set in the Inflation Reduction Act (IRA).
According to the Treasury guidelines laid out in December, President Biden's administration mandates that only electric cars that don't have battery packs with cells produced or assembled by a "foreign entity of concern" (FEOC) can qualify for EV tax credits this year. That includes China which is the world's largest exporter of EV batteries and a supplier of phosphate ones for installing in the Model 3 Highland.
Moreover, 60% of the battery pack has to be made or put together in North America, all the while 50% of the critical minerals in the battery's cells must come from U.S. sources, too. In the first full year of the IRA, these thresholds were lower and all Tesla vehicles qualified for tax credit when their made-in-US component share was spread across Tesla's portfolio.
Now, however, the Model 3 Highland is left out with only 35% of the Long Range version and 40% of the base RWD's components being with North American origin, as opposed to 65% for the Cybertruck and 70% for the Model Y.
The only way for Tesla to bring the Model 3 back into the tax credit eligibility fold is to start making LFP cells in the US or its free-trade countries with local raw materials. It is already taking steps in that direction by building a lithium refinery on the Gulf Coast and probing how to build an LFP battery production line with CATL equipment on US soil.
In the meantime, however, it will have to rely on Chinese batteries for the Model 3 and the price of the world's top selling Model Y with its made-in-US batteries may stay paradoxically below that of a Highland for the foreseeable future.
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