According to Electrek, Tesla has informed its employees that it’s expected to lose the full $7500 federal tax credit for its cheapest electric vehicle because it uses batteries from China. In August 2022, the US government announced that it would provide a tax exemption of up to $7500 for newly sold electric vehicles from January 1, 2023. However, the battery components of the vehicles must be manufactured or assembled in North America, the battery must contain key minerals mined, processed, or recycled in the US, or in countries with a free trade agreement with the US. The final assembly of the vehicle must also take place in North America.
However, the official guidelines on how these requirements will operate were not released in time when the new tax credits took effect in January, so they have been delayed until the second quarter. The IRS is expected to issue detailed guidance on how these requirements will be calculated.
Since the new federal tax credit for electric vehicles was implemented in January, demand for electric vehicle manufacturers has skyrocketed. Tesla is the biggest winner as their buyers lost the opportunity to receive the tax credit several years ago after the automaker delivered 200,000 cars in the US.
For the past three months, eligible buyers of the Tesla Model 3 and Model Y models (the automaker’s cheapest and most popular models) purchased in the US have been able to receive a $7500 tax credit.
However, this will change by the end of March when the new tax credit plan will announce, which includes requirements for batteries to be produced in North America and for battery materials to be purchased from countries with a free trade agreement with the US.
Now, according to insiders, Tesla has conveyed to its employees that the IRS is expected to issue guidance soon and the company expects to lose the full tax credit exemption for its cheapest Model 3 Standard Range due to its battery pack using LFP battery cells made in China.
As for Tesla’s other Model Y and Model 3 models in the US, they are expected to receive the full tax credit exemption because they use battery cells manufactured by Tesla or Panasonic in Nevada, California, or Texas.
Battery materials procurement is also an issue, but Tesla seems to believe that this will not be a problem as most of its battery materials come from countries with free trade agreements such as Australia and Canada.
