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According to a late Tuesday website update, Tesla’s Model 3 and Model Y electric vehicles’ $7,500 federal tax credits may be reduced after December 31.
The website states that customers who take delivery of a qualified new Tesla and meet all federal requirements are eligible for a $7,500 tax credit. “Federal tax credit reductions after Dec 31.”
Tesla has delivered record numbers thanks to EV tax incentives and price cuts. Tesla could cut prices if it lost tax credits, but analysts worry it would hurt margins.
Tesla didn’t say why it expects to lose federal tax credits on its vehicles by 2023, but the government’s plan to tighten battery regulations next year may be the reason.
Two $3,750 requirements—battery and critical minerals—make up the tax credit. In 2023, 50% of the vehicle’s battery must be assembled or manufactured in North America. 60% rises next year.
In 2023, 40% of a car’s battery’s critical minerals must be extracted or processed in the U.S. or a free trade agreement country. 50% by 2024. If they want to keep their credits, EVs must not use critical minerals from China or other countries of concern in 2024 and 2025.
Model 3 batteries come from CATL and Panasonic. The automaker recently ordered Model Y batteries from BYD, a Chinese automaker.
The U.S. wants to stop using China for battery parts and manufacturing. Despite automakers and battery manufacturers investing billions to onshore, that reliance will be hard to end.
China, which produces most cathode, anode, and refined battery materials, has six of the top 10 battery manufacturers. China produced 838 GWh of batteries in 2022. BloombergNEF reports 70 GWh for the U.S. China is expected to increase battery production 600% by 2027, while the U.S. will increase 10x to 908 GWh.
Tesla’s alert may also encourage buyers to order a Model 3 or Y in the coming months to receive the full credit. Tesla Model 3s were only approved for the full credit in June. Since the rules changed, all Model Ys are eligible.
