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Tesla Model 3 tax credit slashed by 50% as new EV subsidy rule guidance scheduled to take effect

The Model 3 Highland may only get $3,750 subsidy in 2024 (image: Tesla)
The Model 3 Highland may only get $3,750 subsidy in 2024 (image: Tesla)
Tesla managed to wiggle all of its electric vehicles into the government's EV subsidy scheme this year, despite that its bestselling models are powered by Chinese LFP batteries. President Biden's administration, however, issued a new guidance rendering some Tesla cars ineligible for the full tax credit amount.

Tesla probed its battery supply scheme earlier in the year and managed to convince the Treasury Department that all of its cars are eligible for the full US$7,500 EV tax credit amount. Despite that its bestselling vehicles like the Model 3 and Model Y use Chinese LFP batteries, fleetwide the total amount of raw materials sourced from non-eligible entities may have stayed under the government's 40% threshold.

President Biden's administration, however, just released its EV tax credit eligibility guidance for next year, confirming that some Tesla cars won't qualify for the full government subsidy, most likely because the battery raw materials threshold goes to 50% in 2024.

Tesla immediately put out a warning that the "$7,500 tax credit will reduce to $3,750 for Model 3 Rear-Wheel Drive and Model 3 Long Range on Jan 1, 2024," indicating which versions will no longer be eligible for the full federal subsidy.

The Tesla Model 3 Highland facelift, which is scheduled for US release in Q1, may only qualify for 50% of the tax credit, too, as it is powered by CATL's M3P phosphate batteries. The US-made Model Y, however, will seemingly stay eligible for the full tax credit amount.

On the other hand, the EV subsidy guidelines issued Friday leave some wiggle room for US automakers like Ford, which plans to invest billions in US battery factories by licensing LFP technology from CATL. Otherwise, the Treasury's "foreign entity of concern" ineligibility clarification now includes anything sourced from China-based companies, US subsidiaries notwithstanding, as well as from any foreign firms that have at least 25% Chinese government stake.

Needless to say, the licensing deals exemption irked some lawmakers like Senator Joe Manchin who said that the new guidelines don't go nearly far enough and will leave too many EVs with Chinese materials eligible for tax credit still. A trade group that lobbies on behalf of Japanese, South Korean, or German automakers, however, said they "appreciate the clarity today’s guidance provides and the flexibility it creates" for its clients, as the government has tried to balance everyone's interest.

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> Expert Reviews and News on Laptops, Smartphones and Tech Innovations > News > News Archive > Newsarchive 2023 12 > Tesla Model 3 tax credit slashed by 50% as new EV subsidy rule guidance scheduled to take effect
Daniel Zlatev, 2023-12- 3 (Update: 2023-12- 3)