EV giant Tesla Inc TSLA on Monday said that the company’s Model 3 Long Range variant now qualifies for a federal tax credit of $7,500, making it merely $1,000 costlier than the cheapest variant of the vehicle for eligible customers.
What Happened: Both the Long Range variant of the Model 3 as well as its Performance version are now eligible for a federal EV tax credit of $7,500. The cheapest rear-wheel drive Model 3, however, is ineligible for any tax credit and starts at $38,990.
| Model 3 Variants | Starting Price Before Tax Credit | Starting Price After Tax Credit |
| Rear-Wheel Drive | $38,990 | $38,990 |
| Long Range All-Wheel Drive | $47,490 | $39,990 |
| Performance All-Wheel Drive | $54,990 | $47,490 |
Until recently, neither of the lower-priced versions of the Model 3 qualified for a federal EV tax credit. The Performance variant, however, qualified, making both the Long Range and Performance variants similarly priced at the end for an eligible customer.
All versions of Tesla’s best-selling Model Y SUV as well as the Long Range variant of its more premium Model X are also eligible for a tax credit of $7,500. As a result, the rear-wheel drive version of the Model Y is cheaper than the corresponding Model 3, starting at $37,490 after tax credit.
| Model Y Variants | Starting Price Before Tax Credit | Starting Price After Tax Credit |
| Long Range Rear-Wheel Drive | $44,990 | $37,490 |
| Long Range All-Wheel Drive | $47,990 | $40,490 |
| Performance All-Wheel Drive | $51,490 | $43,990 |
Why It Matters: Electric vehicles have an average starting price much above combustion engine vehicles owing to the higher cost of parts and manufacturing. Though the ongoing price war started by Tesla in early 2023 has helped bring down the purchase price of EVs significantly, it is still higher than its gas counterparts. The federal tax credit helps bring down the final purchase price for the end customer, thereby improving EV adoption.
Several American EV makers are currently looking to manufacture cheaper EVs to expand their addressable market amid dwindling demand, including Ford Motor Co., Rivian Automotive Inc., and Lucid Motors. Tesla itself said during the company’s first-quarter earnings in April that it would introduce new models including more affordable models by early 2025.
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