$7.5K EV Tax Credit On Two Model 3 Versions To Be Halved Next Year: Tesla Issues Warning After Biden Administration's New Guidance

EV giant Tesla Inc TSLA said on its website on Friday that the current $7,500 EV tax credit on two versions of its Model 3 would be halved starting next year.

What Happened: All new Model 3 vehicles currently qualify for a federal tax credit of $7,500 for eligible buyers. “$7,500 tax credit will reduce to $3,750 for Model 3 Rear-Wheel Drive and Model 3 Long Range on Jan 1, 2024,” the warning reads.

The company also urged prospective buyers to take their deliveries before the end of the quarter to guarantee a full incentive of $7,500.

Why It Matters: The change comes on the heel of the Biden administration’s fresh guidance aimed at reducing Chinese content in batteries eligible for EV tax credits starting next year.

As per the updated guidance issued earlier today and required under an August 2022 law, an electric vehicle may not contain any battery components that are manufactured or assembled by a ‘foreign entity of concern’ (FEOC) starting 2024.

FEOC is an entity that is owned by, controlled by, or subject to the jurisdiction and direction of China, Russia, North Korea or Iran.

Further, starting 2025, an EV may not contain any critical minerals that were extracted, processed, or recycled by an FEOC, the administration said.

As per the latest updates on Tesla’s website, only the following of its vehicles will be eligible for a full $7,500 EV tax credit starting in 2024:

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

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Tesla Model 3 Photo by TierneyMJ on Shutterstock