According to a modification on the automaker’s website late Tuesday, Tesla indicated the $7,500 federal tax credits for its Model 3 and Model Y electric vehicles are expected to be decreased after December 31.
The website states that customers who take possession of a qualified new Tesla and comply with all federal regulations are entitled to a tax credit of up to $7,500. After December 31, there may be reductions to the current federal tax credit.
Along with numerous price decreases, the EV tax incentives have assisted Tesla in setting new records for deliveries.
If Tesla were to lose its tax credits, it could still rely on its tried-and-true (and divisive) price reduction, but analysts are concerned that this could negatively impact the company’s profitability.
Tesla didn’t explain why it anticipates losing federal tax credits on its cars by the end of 2023, but it may be related to the government’s intention to impose harsher battery regulations starting in 2019.
The tax credit is divided into two components, a battery requirement and a critical minerals requirement, both worth $3,750.
In order to qualify for the 2023 battery requirement, 50% of the battery in the vehicle must be constructed or produced in North America. The following year, that proportion increases to 60%.
40% of the important minerals in a car battery must be obtained from or processed in the United States, from a nation with which the United States has a free trade agreement, or from both in order to achieve the critical minerals criterion in 2023.
That proportion will reach 50% by 2024. In 2025, EVs cannot contain any important minerals obtained from China or other nations of worry if they wish to maintain their credits.
Additionally, vehicles cannot use battery parts from a foreign country of concern, i.e. China, in 2024.
For its Model 3s, Tesla purchases its batteries from Panasonic and CATL in South Korea. For the batteries in the Model Y, the manufacturer recently contracted with the Chinese automaker BYD.
The United States is trying to reduce its reliance on China for battery manufacturing and parts by imposing the strict restrictions. It will be difficult to overcome this dependence despite the billions of dollars invested by automakers and battery producers in domestic production.
China, which dominates the manufacture of cathode, anode, and refined battery materials, is home to six of the top ten battery manufacturing firms.
China had an 838 GWh capacity in 2022, which was greater than the rest of the world put together. Those figures are in comparison to the U.S.’s 70 GWh, per statistics from BloombergNEF.
By 2027, U.S. battery production capacity is anticipated to increase 10 times to approximately 908 GWh, yet this is little compared to China’s anticipated 600% increase.
The warning from Tesla might possibly be an attempt to boost sales this year by incentivizing customers to acquire a Model 3 or Y now when there is a good chance they will be eligible for the full credit.
In June, Tesla finally received approval for its Model 3s to be eligible for the full credit instead of just half of it. Since the rules went into effect, any Model Y is eligible.
