As Elon Musk Trolls Biden, Tesla’s Model 3 Is About To Lose the $7,500 Federal Tax Credit

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Elon Musk famously railed against the IRS back in January for classifying Tesla’s 5-seat version of the Model Y as a sedan, thereby imposing negative tax credit implications. At the time, Musk had claimed that the variant was too “mass efficient” for IRS’ sensibilities. However, it seems that the real threat was in relation to Tesla’s bread and butter – the Model 3.

As a refresher, the Biden administration’s Inflation Reduction Act has reintroduced a $7,500 federal tax credit on the purchase of electric vehicles. The snippets above detail the various requirements that the tax credit entails, including an upper limit on personal/household income, gross vehicle weight rating of less than 14,000 pounds, a hard-coded requirement of final assembly in North America, and a price ceiling of $80,000 for electric SUVs and pickup trucks and $55,000 for electric sedans.

This brings us to the subject matter of today’s post. Electrek is now reporting that Tesla has communicated to its employees that it expects to lose the $7,500 tax credit on the Model 3 amid continuing revisions and clarifications to the battery production and material sourcing guidelines from the IRS. The Standard Range (SR) Model 3 is built in Fremont, California, but its LFP battery packs are sourced from China.

Bear in mind that other variants of the Model 3, as well as Model Y, appear to still qualify for the tax credit as their battery packs are built by Tesla or Panasonic in the US.

Nonetheless, the exclusion of Model 3 SR from this crucial federal incentive will dent the version’s demand as its effective price will increase