Tesla (TSLA) expects to lose tax credit on standard Model 3

Electrek reports Thursday, citing people familiar with the matter, that Tesla (NASDAQ: TSLA) told employees they expect to lose the full $7,500 federal tax credit on their cheapest electric car, the Model 3 Standard range.

The communication to employees appears to have been done to prepare buyers of those vehicles, as the access to the full credit could change if delivery is done on April 1 rather than March 31 – pending official guidance.

For the last three months, eligible buyers in the US could get the tax credit on all Tesla Model 3 and Model Y vehicles. However, the electric automaker expects the IRS to release battery supply guidance any day now. Once that happens, the company expects to lose the full credit on the Model 3 Standard Range, as their batteries are supplied from China.

When the new tax credit program was announced, it included requirements for at least 40% of the value of the critical minerals in the battery having been extracted or processed in the United States or a country with a U.S. free-trade agreement, or recycled in North America in order to get access to up to half of $7,500 credit. The other half requires manufacturing or assembly of at least 50% of battery components in North America.

In December, Treasury decided not to issue proposed guidance on battery sourcing rules until March, effectively giving some EVs not meeting new requirements a few months of eligibility in 2023 before battery rules take effect. Senate Energy Chairman Joe Manchin harshly criticized that decision saying it "created an opportunity to circumvent stringent supply chain requirements."

Tesla’s other Model Y and Model 3 vehicles are expected to retain access to the full tax credit as they are using battery cells built by Tesla or Panasonic in Nevada, California, or Texas.

Shares of TSLA are up 2.21% in pre-market trading on Thursday.

By Michael Elkins | [email protected]

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