In a recent update on Tesla's website, it has been announced that all new Tesla Model 3 vehicles will now be eligible for the full $7,500 federal electric vehicle (EV) tax credit. This change comes as a result of modifications made to Tesla's qualification criteria.
Last August, Congress mandated EV tax credits as part of the Inflation Reduction Act, with the primary aim of reducing the United States' dependence on China for batteries. The $7,500 tax credit is divided into two components. The first half of the credit, amounting to $3,750, is granted if 50% of the battery components' value is produced or assembled in North America. The second half requires 40% of the value of critical materials to be sourced from the United States or another country under a free trade agreement.
When the tax credits were introduced on January 1, the Treasury Department delayed publishing guidance on battery sourcing requirements, allowing EV manufacturers to adjust and comply with the new regulations. However, on April 18, the department began enforcing the critical material sourcing requirement. This enforcement resulted in many vehicle models, including BMW, Rivian, Volvo, and Hyundai, losing their eligibility for the full tax credits they had initially qualified for in the first quarter of the year. Even Tesla's Model 3 saw its full credit reduced by 50%.
In an unexpected turn of events, Tesla has now made all its Model 3 variants eligible for the complete $7,500 tax credit. Previously, only the Model 3 Performance qualified for the full credit, but now both the Model 3 long-range all-wheel drive and rear-wheel drive versions will also meet the criteria. With the tax credit applied, the starting price for the Model 3 rear-wheel drive will be $32,740.
Although Tesla has not explicitly stated the reasons for this change, CEO Elon Musk indirectly confirmed it by retweeting a screenshot of the website displaying the updated tax credits for each Tesla vehicle. Notably, the Treasury Department's website has yet to be updated to reflect Tesla's newfound eligibility for these tax credits.