According to EV news outlet Electrek, Tesla has notified its employees that it expects to lose the full $7,500 federal tax credit on its cheapest electric car, the Model 3 Standard Range. This is due to the fact that the batteries for this vehicle are sourced from China.
The new federal tax credit program for electric vehicles, which came into effect in January, has resulted in a surge in demand for electric automakers. Tesla has been the biggest beneficiary of this program. Previously, Tesla’s buyers had lost access to the tax credit after the company hit 200,000 deliveries in the US. However, for the last three months, eligible buyers in the US could avail a $7,500 tax credit on all Tesla Model 3 and Model Y vehicles, which are the automaker’s two cheapest and most popular models.
The new tax credit program included requirements for battery production in North America and battery material sourcing in countries with free trade agreements with the US in order to get access to up to half of $7,500 credit. However, the guidance on how these requirements would work was not released in time for the new tax credit coming into effect in January, and therefore, they were waived until the second quarter.
The IRS was expected to release detailed guidance on how those requirements will be accounted for by then. Tesla now expects the guidance to be released any day now. The automaker has informed its employees about the expected change to prepare buyers of the Model 3 Standard Range.
The Model 3 Standard Range is manufactured in Fremont, California, in the US, but its battery pack uses LFP battery cells built in China. If the delivery of this vehicle is done on April 1 rather than March 31, buyers may lose access to the full credit, pending official guidance.
Tesla’s other Model Y and Model 3 vehicles in the US are expected to retain access to the full tax credit as they use battery cells built by Tesla or Panasonic in Nevada, California, or Texas. Tesla is confident that battery material sourcing won’t be an issue since a large percentage of its battery materials are sourced from countries with free trade agreements like Australia and Canada.
