Tesla Model Y tax credit to end soon as federal government nixes all EV subsidies

The Big, Beautiful Bill government budget that on July 4th does away with the federal EV tax credit. Starting October 1, the Model Y and the rest of Tesla's vehicle roster will no longer qualify for the federal EV tax credit.

This will automatically raise the Model Y price by $7,500, or the amount of the government clean energy subsidy for new electric vehicles that has been in place ever since the Biden administration's Inflation Reduction Act of 2022.

When is the Tesla Model Y tax credit ending?

• September 30

The removal of the Model Y tax credit after Q3 is likely to result in pulling a lot of demand forward, so Tesla could very well report a stellar June-September quarter, unlike the previous one where it logged a 13% drop in year-on-year sales.

This could temporarily boost its stock price, but when the all-important holiday quarter comes, Tesla will have to either cut the Model Y pricing, introduce more purchase incentives like a 0% APR financing rate, or launch the rumored smaller, cheaper Model Y version.

Tesla currently advertises the Model Y price as starting from $37,490, while the MSRP without the tax credit is $44,990. That is still in line with the average price of a mid-range crossover SUV in the US with extra options. Tesla will have to be really convincing about the merits of its unique self-driving option, though, given that the cost to drive a Model Y equals that of popular ICE SUVs like the Honda CR-V or the Toyota RAV4.

The removal of the green vehicle tax credit comes despite that all Tesla vehicles sold in the US are now made in America and comply with all the IRA's original requirements. The government is also doing away with the used EV tax credit of $4,000 on the same September 30 date.

Some of the up to $45/kWh credits for made-in-America battery packs remain, though. Tesla can theoretically still take advantage of those until 2032 when all subsidies will expire, to try and compensate the new EV tax credit loss somewhat.