Is Tesla Model 3 Still The Best Purchase After Variants Losing EV Tax Credit Next Year?

EV giant Tesla Inc TSLA took to X on Wednesday to announce that the company’s cheapest vehicles— namely the Model rear-wheel drive (RWD) and the long-range (LR) version— will not be eligible for federal EV tax credit starting next year.

However, the Model 3 Performance version and all versions of the Model Y continue to be eligible for a full tax credit of $7,500. With the changes in tax benefits, the starting prices of the vehicles after the tax credit are now as follows:

Soon after the Biden administration issued fresh guidance aimed at reducing Chinese content in batteries eligible for EV tax credits starting next year, Tesla issued a warning on its website on Dec. 1 that the tax credit on Model 3 RWD and Long Range would be halved starting next year. However, last day, the company clarified on its website that the vehicles will no longer be eligible for any tax credit at all.

With the tax credit bringing down the starting price of the Model Y SUVs, the Model 3 RWD will not be the cheapest offering from Tesla starting next year. The Model Y RWD would start at merely $36,490, below the starting price of the Model 3 RWD.

In fact, both the RWD and Long Range versions of the Model Y will be priced lower that its Model 3 counterparts and the price range of the two models will increasingly merge with only minor differences unless Tesla devises some pricing changes.

Tesla has been cutting prices on its vehicles in the U.S. since the start of 2023. Though the company also raised prices intermittently, all Tesla vehicles are presently cheaper as compared to the start of the year.

Photo by Hadrian on Shutterstock

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