Tesla announces it will lose entire $7,500 tax credit on base Model 3 trims

Tesla announced today that it will lose the entire $7,500 federal tax credit on Model 3 RWD and Long Range, the two least expensive versions of the popular electric car, starting next year.

Buyers of all Model 3 vehicles, depending on their own eligibility based on income, have had access to a $7,500 federal tax credit since the reform of the federal electric vehicle incentive program that was implemented in 2023.

But buyers are not the only ones with eligibility criteria. The electric vehicles also need to be eligible based on things like price and source of components.

The component criteria, and especially the battery material criteria, are changing every year and becoming stricter to include more batteries and materials built in North America.

With the stricter criteria starting next year, Tesla has warned that it expects to lose part of the tax credit on some Model 3 models.

Earlier this month, the automaker confirmed that it expects Model 3 RWD and Model 3 Long Range to lose half the credit based on the new requirements.

However, it looks like Tesla was wrong about that.

Today, Tesla announced that it now expects to Model 3 RWD and Long Range to lose the entire tax credit starting on January 1st:

We weren’t exactly sure how Model 3 RWD and Long Range were getting the full tax credit already since they are believed to be using LFP battery cells from China, but it now looks like the battery requirements are now fully catching up to those models.

While this will hurt Model 3 sales in the US next year, it should definitely help Tesla sell Model 3 vehicles in the next two weeks for its end-of-the-year delivery push.