All of Tesla’s Model 3 sedans are now eligible for the full U.S. tax credit under new criteria for battery-sourcing set by the U.S. Treasury Department, part of a Biden administration plan to spur adoption of electric vehicles.
The change, announced in an update on a government website detailing vehicle eligibility Tuesday, brings the total number of EV models eligible for the full tax credits to 22, including some from General Motors, Ford Motor and Volkswagen.
Only the performance version of the Model 3 was previously eligible for $7,500 in tax credits. Before Tuesday, the Treasury Department had said the long-range Model 3, which Tesla recently resumed selling, would qualify for only $3,750 in federal tax credits.
Tesla’s Model S and Model X vehicles do not qualify for any tax credit.
It wasn’t immediately clear what prompted the eligibility change, which Tesla referred to on its website several days before the government’s confirmation. Canaccord analyst George Gianarikas said in a note that the company may have moved production of lithium iron phosphate battery packs to the U.S. from China in order to qualify.
Tesla didn’t respond to inquiries Tuesday. The Treasury Department said that they wouldn’t share paperwork submitted by the company to the IRS.
Certain electric vehicles in the U.S. are eligible for tax credits under the Inflation Reduction Act as long as they meet specific criteria. For the full $7,500 credit, at least half of the vehicle’s battery components must be made in North America, and 40% of the value of raw materials in the battery extracted from or processed domestically or in countries with U.S. free-trade agreements.
One of the overarching goals of the IRA is to make the U.S. less reliant on China, which dominates the EV battery supply chain.
(c) 2023, Bloomberg · Keith Laing