Tesla has updated its website, indicating that as of December 31, 2023, the $7,500 federal tax credit will cease to apply to the Model 3 Rear-Wheel Drive and Model 3 Long Range variants. Previously, the company had communicated a reduction to $3,750 for these models starting January 1, 2024. This change in messaging has heightened urgency among potential buyers to place orders and take delivery before the year-end deadline.
Earlier this year, Tesla faced uncertainty regarding federal subsidies as concerns were raised, particularly by Senator Joe Manchin, about the generosity of electric vehicle (EV) subsidies for cars equipped with batteries largely sourced from China, such as the Model 3. Subsequent Treasury Department guidelines reinstated tax credit eligibility for all Tesla vehicles, with the company successfully demonstrating that the proportion of China-sourced raw materials in its batteries fell below the 40% threshold for 2023.
However, the evolving landscape presents new challenges for Tesla in 2024, as the threshold for battery raw materials sourced from the U.S. or select free-trade partners, excluding China, is set to increase to 50%. The latest federal guidelines suggest that Tesla may encounter difficulty proving that batteries from suppliers like CATL or BYD, used in its popular Model 3 and Model Y, meet the 50% raw material sourcing criteria.
In light of these developments, the $50,990 Model 3 Performance trim may potentially see its effective purchase price fall below that of the Model 3 Long Range after factoring in the federal tax credit. This could create an intriguing scenario in early 2024, particularly with the expected release of the Model 3 Highland facelift in the U.S.