Tesla's rear-wheel-drive Model 3 and Model 3 long-range vehicles will no longer qualify for the federal government's full $7,500 tax credit for eligible EV purchases starting next year.
The EV giant announced on its website that starting January 1, 2024, the tax credit for the two Model 3 variants will be cut in half to $3,750.
Tesla did not explain the reason for the tax credit reduction and did not immediately respond to FOX Business' request for comment. However, the warning comes after the Biden administration released updated guidance last week aimed at helping automakers and consumers determine which electric vehicles (EV) are eligible for tax credits under the Inflation Reduction Act ( IRA) from 2022.
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According to Inside EVs, Tesla has posted a similar warning on its Model 3 page since July, warning customers that reductions in the federal EV tax credit could occur starting in 2024, but the previous message did not specify which variants of the model could be affected.
Treasury Department guidance, released in conjunction with the White House Office of Clean Energy Innovation and Implementation and the Department of Energy on Friday specifically define the term “foreign entity of interest.”
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Under the IRA, EVs are prohibited from receiving the $7,500 federal credit if they are assembled with any battery components or critical minerals sourced from a foreign entity of interest (FEOC) starting in 2024 and 2025, respectively.
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O new IRA guidance states that to be eligible for a $3,750 tax credit, a certain percentage of the value of an EV's battery components must be manufactured or assembled in North America, and a certain percentage of the value of the critical minerals contained in the battery must be mined or processed in the US or by a country with which the US has a free trade agreement, as required by the IRA.
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“Now the new tax rules are clear, and the Model 3 RWD and LR are likely penalized because their batteries contain components from a so-called 'foreign entity of concern' – in this case, China,” Inside EVs reported.
FOX Business' Thomas Catenacci contributed to this report.