Tesla Model 3 RWD and Long Range losing half of their tax credits in 2024

Tesla has warned buyers in the market for a Model 3 that two variants of the electric sedan will no longer be eligible to receive the government's full $7,500 tax credit starting in January 2024. Customers who take delivery after December 31, 2023, will only get half of that figure back.

Posted on the company's official website, the note explains that "the tax credit will reduce to $3,750 for the Model 3 rear-wheel-drive and the Model 3 Long Range on January 1, 2024." That's a third of the lineup; the range-topping Model 3 Performance is eligible for the full $7,500 tax credit. Tesla hasn't revealed why buyers who take home one of the bottom two Model 3 trim levels can no longer claim the full tax break.

However, the answer likely lies in the updated rules announced in December 2023 by the Department of Energy. The department aims to keep countries and companies labeled as "a foreign entity of concern" out of American manufacturing. Put another way, it doesn't want parts or chemicals made in China, Russia, North Korea, and Iran to power electric cars on American roads. While it's not imposing an embargo against these countries, it's trying to encourage a shift towards American-sourced materials by excluding cars whose battery pack is built using parts that come from a company owned or at least 25% controlled by one of these nations ineligible for the full $7,500 tax credit.

Tesla also notes that not everyone is eligible to claim a tax credit. If you're a married coupe filing jointly, your gross income can't exceed $300,000. That figure drops to $225,000 for the head of a household and $150,000 for everyone else. There are price limitations as well: To claim a credit, buyers need to spend less than $55,000 on a Model 3, less than $80,000 on a Model X, and less than $80,000 on a Model Y.

You're out of luck if you're in the market for a Model S. Motorists who buy one — regardless of when they take delivery or how much they spend on it — won't be able to claim a tax credit because the sedan's base price of $74,990 far exceeds the government's $55,000 limit.