Will the new Tesla Model 3 qualify for a tax credit?

Will the new Tesla Model 3 qualify for a tax credit?

When the Democrat-controlled US Congress and President Joe Biden extended the federal tax credit for electric vehicles a couple of years ago, essentially reviving it for companies like Tesla that had previously had tax credits for their buyers phased out, they addressed what has widely been seen as a major concern for the United States: the fact that the majority of EV batteries are produced in China. Wanting to provide more geopolitical and economic security, and economic growth, the policymakers decided that starting in 2024, to be eligible for the tax credit, a car’s batteries couldn’t come from a country seen as an “entity of concern.” Most notably, that included China.

So, there was plenty of time and advanced notice to figure out if a model would be eligible for the tax credit or not. For some high-volume models, perhaps there was not time to get batteries elsewhere by 2024. More than one year of time to get ones ducks in order might seem like a lot, but the battery supply chain is long and complicated, and orders are placed years in advance for electric cars, especially very high-volume cars that need a ton of batteries.

Tesla did not get the Tesla Model 3 Standard Range’s and the Tesla Model 3 Long Range’s ducks in order in time, and they lost access to the tax credit. As we’ve noted, that makes the Model 3 Performance and the Model Y highly competitive compared to those cheaper Tesla Model 3 options. Though, maybe there’s a benefit here for Tesla.

I recently saw the question raised on the Tesla Owners Online forum about whether or not the new Tesla Model 3, the “Highland” Model 3 that came to the US a month ago, would eventually be eligible for the tax credit again. Unfortunately, we don’t have a clear answer on that. I haven’t seen Elon Musk asked the question let alone answering it. But the question got me thinking.

For one, I assume Tesla needed some time to get a supply deal for so many batteries from elsewhere. After all, Tesla sold more than 200,000 Model 3 cars in the US in 2023 and more than 400,000 Model Y crossovers. That’s a lot of cars, and you can’t change where you’re getting all of those batteries with the snap of a finger. However, one would think — one would hope — that Tesla started working on improving its battery supply chain for the Model 3 back in 2022, and that the car will eventually be eligible for the tax credit again.

If that’s the case, Tesla could actually get three separate boosts in demand from the path it takes. First of all, there must have been a rush in sales at the end of 2023 from buyers knowing the tax credit was going away and feeling pressured or enticed to get a Model 3 before it did. Then, Tesla must have gotten a boost in early 2024 (right now) from introducing the new Highland version of the Model 3. And, lastly, if the Highland does eventually gets its batteries from the US (or a “friendly” nation) and become eligible for the tax credit again, then the model should get another boost in consumer demand at that time from all the buzz around that. Perhaps Tesla played its cards just right on this.

If I had to bet money on it, I’d probably bet that the Model 3 Highland will become eligible for the tax credit — either in the second half of 2024 or in 2025. But who knows? What do you think? Will the full Model 3 lineup be able to earn you a $7,500 US tax credit again? And if so, is the path Tesla has taken the right path on this model?

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