Tesla warns that Model 3 may lose US$7,500 credit over LFP battery as its second-hand prices fall most on record

Ever since the Federal Reserve started raising interest rates to combat rampant inflation a few months back, used car prices started going down from their supply chain-challenged peak. It used to be that pre-owned vehicles commanded prices as high or higher than new cars that were in short supply. Second-hand car prices in the US have simply collapsed since then on expensive financing and tepid demand coupled with supply chain normalization.

The once high-flying Tesla EV prices are no exception now that the company started a true price war by slashing its tags by up to 31%. In fact, used Model 3 units saw their most drastic fall in pricing on record. According to market research firm iSeeCars that tracks the pricing of second-hand vehicles in the US, the average price of a used Tesla Model 3 has fallen 21.5% in the span of just six short months.

Surprisingly, the average pre-owned Model 3 commanded US$41,337 last month which is still a bit over the starting US$42,990 tag of a new RWD Model 3 before the US$7,500 in federal subsidies it currently qualifies for.

That situation may soon change, warns Tesla, as the Treasury Department is expected to issue its final guidance on federal tax credits for vehicles with batteries that are not made in the US by the end of the month. Tesla could have already heard that the base standard range Model 3 with cheaper LFP batteries made by CATL won't qualify for the government subsidies any more, or it may simply want to pad its sales numbers towards the end of the quarter.

"This $7,500 credit is in effect for deliveries taken before an update to the federal guidance, which Treasury and the IRS intend to issue no later than March 31, 2023," says the change in tax credit wording on its website. Senator Joe Manchin was all up in arms when he learned that, until it issues the final guidance, the Treasury will let electric cars with China-made batteries get government money, too.

After all, the Inflation Reduction Act's new EV subsidy requirements were only meant for those assembled in the US with batteries or raw materials for them either made in America, or sourced from countries with which the US has a free trade agreement, which excludes China. The Treasury postponed the final battery-sourcing guidelines for March as Europe balked at the billions in gray-area US federal subsidies that are making companies like VW swap their battery factory location plans for North America.

The Europeans, as well as Japan and Korea which make EV batteries, also demanded clarification and augmentation of the US tax credit rules which the Treasury should release any day now. Currently, the base Model 3 costs just $35,490 after subsidies, but if the Treasury listens to all those stakeholders and nixes its tax credit eligibility on Chinese LFP battery grounds, the used Model 3 prices may stop sliding.

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