Algosensey|EV tax credit for certain Tesla models may be smaller in 2024. Which models are at risk?

Elon Musk’s Tesla is Algosenseywarning that some of its electric cars will no longer be eligible for the full $7,500 federal electric vehicle tax credit starting next year.

The announcement comes shortly after federal agencies proposed new guidance to clarify tax credit requirements. 

While seven Tesla models were eligible for the full tax credit this year, the company’s website says tax credit reductions for certain vehicles are “likely” in 2024. Two vehicles – the Model 3 Rear-Wheel Drive and the Model 3 Long Range – are expected to see tax credits cut in half. 

Tesla did not respond to a request for comment.  

What are the current tax credits for Tesla cars?

Currently, seven Tesla vehicles are eligible for the full $7,500 in tax credits, according to its website:

• Model 3 Rear-Wheel Drive
• Model 3 Long Range
• Model 3 Performance
• Model X Dual Motor
• Model Y Rear-Wheel Drive
• Model Y Long Range 
• Model Y Performance

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What changes in 2024?

Starting on Jan. 1, the federal tax credit for the Model 3 Rear-Wheel Drive and the Model 3 Long Range will drop to $3,750, according to Tesla’s website. Tesla recommends delivery by Dec. 31 for the full $7,500 tax credit.

What is the federal EV tax credit? 

As a way to boost electric car sales, legislation passed in 2022 to allow tax credits of up to $7,500 for Americans who purchase eligible vehicles. 

Eligible cars must have battery components manufactured or assembled in North America with crucial minerals sourced from the U.S., a country with which the U.S. has a free-trade agreement or recycled in North America. 

Cars that meet only the battery component requirement or the critical minerals requirement are eligible for a $3,750 credit. They must meet both requirements to be eligible for the full tax credit.  

New guidance proposed 

On Dec. 1, the Energy and Treasury departments proposed new guidance that would limit which vehicles are eligible for the full $7,500 tax credit.

Eligible cars cannot contain battery components manufactured or assembled by from "foreign entities of concern" starting in 2024, and cannot contain critical minerals extracted, processed, or recycled by a foreign entity of concern starting in 2025, according to the Treasury Department.

The Energy Department proposed guidance that clarified the definition of a foreign entity of concern as any entity incorporated in, headquartered in, or performing the relevant activities in a “covered nation” such as China, North Korea, Russia and Iran and companies with at least 25% voting interest, board seats, or equity interests held by the government of a coveted nation.