To The Moon

The IRS is planning to release updated battery sourcing and manufacturing guidelines for the clean vehicle tax credit by March 31st: which Tesla vehicles and configurations should still qualify beginning next month?

Tesla Model 3

Model 3 Rear-Wheel Drive

This is the only configuration that Tesla executives are almost definitively expecting to no longer qualify beginning on April 1st once specific guidelines become effective.

The reasoning is sound: Model 3 Rear-Wheel Drive is the only Tesla vehicle to use a lithium-iron phosphate battery, which is manufactured in China.

Lithium-iron phosphate batteries use a different battery structure than the more conventional lithium-ion battery, with benefits for a comparatively ‘Standard Range’ vehicle including the ability to charge to 100% daily.

It’s likely that the IRS will begin to enforce the stipulation that at least half of the vehicle’s battery production must take place in North America.

Note that Model 3 Rear-Wheel Drive, like all qualifying vehicles in this post, should still be eligible for the $7,500 renewed clean vehicle tax credit for buyers that take delivery by March 31.

This may also affect the pricing of leasing a Model 3, as Tesla is currently utilizing the tax credit to increase the residual for an all-time low lease of $349/month with $4,500 down.

Model 3 Long Range All-Wheel Drive

While Model 3 Long Range All-Wheel Drive is not currently available to configure for new orders, Tesla expects that enough of its battery components are sourced and manufactured in compliant facilities.

Model 3 Performance

Similarly, Model 3 Performance which utilizes the same lithium-ion battery should continue to qualify for the $7,500 tax credit as it uses batteries produced in countries with Free Trade agreements.

Tesla Model Y

Model Y All-Wheel Drive

Unlike Model 3 Rear-Wheel Drive, the new Model Y All-Wheel Drive base model uses 4680 battery cells primarily produced at Giga Austin thereby making the configuration eligible.

Model Y Long Range All-Wheel Drive

Model Y Long Range All-Wheel Drive uses a mix of batteries produced in America as well as Japan, with a majority of battery materials also sourced from countries with standing Free Trade agreements thus it should remain eligible.

Model Y Performance

Model Y Performance also uses the same battery, which should keep it eligible.

Tesla Model S and Model X don’t qualify for the Renewed Clean Vehicle tax credit due to a high overall MSRP that’s above MSRP limits; otherwise, their battery production and sourcing would qualify all configurations.

Official guidelines should be released on or before March 31, 2023.

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