Federal EV tax credit slashed in half for some Tesla Model 3s in 2024

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Tesla's Model 3 Rear-Wheel Drive and Model 3 Long Range vehicles will no longer qualify for the federal government's full $7,500 tax credit for eligible EV purchases starting next year.

The EV giant announced on its website that starting Jan. 1, 2024, the tax credit for the two variants of the Model 3 will be cut in half, down to $3,750.

Tesla did not explain the reason for the reduction in the tax credit, and did not immediately respond to FOX Business' request for comment. However, the alert comes after the Biden administration released updated guidance last week aimed at helping automakers and consumers determine which electric vehicles (EV) are eligible for tax credits under the 2022 Inflation Reduction Act (IRA).

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According to Inside EVs, Tesla had posted a similar notice to its Model 3 page since July alerting customers that reductions in the federal EV tax credit could be coming starting in 2024, but the previous message did not specify which model variants might be impacted.

The Treasury Department guidance, released in conjunction with the White House Office of Clean Energy Innovation and Implementation and Energy Department on Friday, specifically defines the term "foreign entity of concern."

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Under the IRA, EVs are prohibited from receiving the $7,500 federal credit if they are assembled with any battery components or critical minerals sourced from such a foreign entity of concern (FEOC) beginning in 2024 and 2025, respectively.

The new IRA guidance states that in order to be eligible for a $3,750 tax credit, a certain percentage of the value of an EV's battery components must be manufactured or assembled in North America, and a certain percentage of the value of the critical minerals contained in the battery must be extracted or processed either in the U.S. or by a country with which the U.S. has a free trade agreement, as required by the IRA.

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"Now the new tax rules are clear, and the Model 3 RWD and LR are likely penalized because their battery packs contain components from a so-called ‘foreign entity of concern’ — in this case, China," Inside EVs reported.

FOX Business' Thomas Catenacci contributed to this report.

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