Tesla says Model 3 consumer tax credits likely to be reduced after Dec.31

By Hyunjoo Jin and David Shepardson

SAN FRANCISCO (Reuters) -Tesla said the $7,500 federal tax credits for its Model 3 electric vehicles are likely to be reduced after Dec. 31, according to its website on late Tuesday.

Tesla did not elaborate on the reasons for the change, but the move comes as U.S. government is set to enforce more stringent rules on batteries next year, in a move to boost domestic manufacturing of the key EV component and reduce the U.S. dependence on China.

In June, all Tesla Model 3 vehicles started to qualify for the $7,500 consumer tax credits after two of the three versions had been eligible for half the credits. The generous subsidy, which also applies to Model Ys, helped boost Tesla’s shares and the automaker post a record quarterly deliveries for the April to June period.

“All new Model 3 vehicles currently qualify for a federal tax credit for eligible buyers. Reductions likely after Dec 31,” Tesla said on its website.

The EV credit currently requires 50% of the value of battery components to be produced or assembled in North America to qualify for $3,750 of the credit and 40% of the value of critical minerals sourced from the United States or a country with which it has a free trade agreement. Those rise by 10 percentage points annually.

Starting in 2024, the government will also bar vehicles from tax credits with battery components from “foreign entities of concern” and beginning in 2025 an eligible vehicle may not contain any critical minerals that were extracted, processed, or recycled by a foreign entity of concern. The Treasury plans to issue a guidance this year on the extent of the restrictions.

Tesla uses batteries from CATL <300750.SZ> and Panasonic <6752.T> for its Model 3s, which will undergo a major design change later this year.

(Reporting by Hyunjoo Jin and David Shepardson; Editing by Aurora Ellis)


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