Tesla reworks battery supply chain to officially max out the Model 3 tax credits

Over the weekend, Elon Musk retweeted a Tesla website section which listed all of its vehicles sold in the US as eligible for the government's generous $7,500 tax credit maximum, yet the official IRS list contradicted their claim. Since April 18, Model 3 RWD buyers have only been receiving 50% of that subsidy, or the amount awarded for its assembly in North America.

The other 50% would come if half of the battery components are produced in the US, and at least 40% of the critical minerals that go into the production of the base Model 3's battery cells originate from the handful of countries that the US has a free trade agreement with.

Those are Australia Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and Singapore. After Japan balked at the US government's protectionist new EV tax credits that it said put its automakers at a disadvantage, Biden's administration also negotiated a limited free trade agreement with it that only has critical minerals extraction and processing as a subject.

The battery component requirements are intent to circumvent China which holds the lion's share of EV battery production or critical minerals supply. China's biggest battery maker CATL, however, is the one that provides the LFP batteries for the Model 3 RWD, so until today it was not eligible for the full tax credit amount.

Tesla, however, somehow managed to lean on CATL over sourcing of critical minerals away from China, and ensured North American assembly of enough of the base Model 3's LFP battery packs to remedy this. The IRS new EV tax credit eligibility list just made this official, too, showing all Model 3 versions as qualifying for the full $7,500 amount. Next year, however, the US government ups the battery raw materials percentage eligibility, so Tesla has probed the White House about building a joint LFP battery factory with CATL in Texas. 

When stacked with similar new EV purchase incentives in several states like California or Colorado, the base Model 3 price is now close to what popular gas-powered competitors cost there, ushering in a new era of EV affordability. This is all thanks to the government's largesse that Tesla is forecast to receive a whopping $41 billion windfall from while the tax credit program lasts.

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