Tesla Model 3 RWD will now be eligibl
Tesla’s Model 3 Rear-Wheel Drive (RWD) variant will be eligible for the $7,500 Inflation Reduction Act (IRA) EV tax credit for a little longer than expected. The tax credit was initially expected to end for the rear-wheel drive vehicle on March 31st. However, the updated guidelines are now set to be released on April 18th, 2023. The updated guidance will cover battery production, assembly, and mineral sourcing requirements, affecting the eligibility of several electric vehicles (EVs) for full or partial credits.
The rules released for January 1 have been updated. Under the new guidance, at least 50% of an EV’s battery components must be produced and assembled within the United States or in a country with a free trade agreement for the vehicle to qualify for the IRA tax credits. Additionally, at least 40% of the minerals used in an EV’s battery must be sourced from the US or a country with a free trade agreement with the US. This percentage will increase by 10% annually, reaching 50% by 2024.
Impact on Tesla Model 3 RWD Tax Credit Eligibility
Tesla’s Model 3 RWD battery pack, produced and assembled in China, uses CATL’s LFP cells, which do not meet the new battery sourcing guidance. Consequently, the Model 3 RWD will not qualify for tax credits. The current Tesla Model 3 RWD price is $42,990 without the tax credit. However, Tesla’s Model 3 Performance variant, equipped with domestically produced and assembled battery packs, will still be eligible for the full $7,500 EV tax credits.
A US official told Reuters that the Treasury’s battery guidance would result in fewer EVs qualifying for credits. The Biden administration hopes the tax credit changes will lead to more EV sales as automakers adapt their supply chains to comply with the critical mineral and battery component rules.
Compliance Definitions: Extraction, Processing, and Recycling
To certify compliance with the US battery sourcing guidance, the Treasury has defined activities and processes related to the extraction, processing, and recycling of battery materials. The rules are part of a $430 billion climate bill aiming to reduce the United States’ dependence on China for EV batteries and solar panels.
In February, the Treasury revised its vehicle classification definitions, making more Tesla, Ford, General Motors, and Volkswagen EVs eligible for up to $7,500 tax credits. However, some vehicles may see credits decline as the new battery guidance takes effect.