Tesla Expects to Lose the $7,500 Tax Credit for the Model 3 RWD: What Tesla Will Do To Counter This

Tesla Model 3 RWD - Why It Will Probably Lose the $7,500 Tax Credit

Tesla may be in danger of losing the $7,500 U.S. Federal Tax credit for its Model 3 RWD - the standard range Model 3 and the reason is simple. The LFP batteries that are in this vehicle are made from CATL in China.

Tesla vehicles have seen an increase in demand due to cutting prices this year. When you add in a $7,500 tax credit for all Model 3 and Model Y vehicles, that creates even more demand.

For January through March 2023, Tesla has been able to take advantage of this tax credit. Tesla has even said on their website that things may change by the end of March 2023. This is because the tax credit included requirements for battery production to be in North America and the battery material sourcing to be with countries with free trade agreements with the U.S. to get half of the $7,500.

The full credit could change if delivery is done on April 1st rather than March 31st, pending an official announcement. That is cutting it close!

All of Tesla's other vehicles are expected to fully take advantage of the tax credit, including the Model 3 Performance, Model 3 Long Range, Model Y Long Range, and Model Y Performance.

Fortunately for Tesla, the Model 3 RWD is not Tesla's best-selling vehicle, though it is very good value for what you pay for it. I bought mine last August 2022, for about $43,900. This included the metallic gray paint, which now costs $1,000, so I am about even with the current price changes Tesla has made.

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What Tesla Will Do To Counter the Tax Credit Loss

What can Tesla do about this tax credit? There are several things Tesla can do and let's go over them. The first is that they can start making batteries in the U.S. This is what Giga Texas is for. Large scale battery manufacturing for LFP is coming to the U.S. and this is good for Tesla.

If Tesla can make their own batteries - or even buy their batteries from a battery manufacturer in the U.S., this takes care of the problem. What this means is that I don't think the Model 3 RWD will indefinitely be excluded from the tax credit. I think Tesla will very quickly solve the problem and start getting batteries in the U.S. It just makes tremendous business and economic sense to do so, and you don't have to ship the batteries in from China.

The next thing Tesla can do is actually execute on their Project Highland for the Model 3 RWD and cut costs drastically on the vehicle and lower its price.

This video from Tailosive EV explains the Model 3 RWD changes well:

I recently wrote about the leaked change that Project Highland will include on the Model 3 RWD. Many have said this doesn't exist, and there still seems to be momentum that there are going to be changes to it. The changes will happen later this year in Q3. It will start in Giga Shanghai first where it will be tested, and then it will come to Fremont. This probably won't be seen in the U.S. until later this year or early next year.

Lastly, Tesla can accelerate development of their compact car and allow this vehicle to cannibalize sales of the Model 3. If it is a lot smaller than the Model 3, however, then I don't see it cannibalizing sales as much as people might think.

Tesla would also need to release the compact car in the U.S. and get its batteries from a company in North America. This is probably the least likely outcome because this vehicle will be started in Giga Mexico...

What do you think Tesla can do to alleviate a tax credit loss from the Model 3 RWD?

In Related News: Tesla Model Y is Big Savings For Police Departments

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Jeremy Johnson is a Tesla investor and supporter. He first invested in Tesla in 2017 after years of following Elon Musk and admiring his work ethic and intelligence. Since then, he's become a Tesla bull, covering anything about Tesla he can find, while also dabbling in other electric vehicle companies. Jeremy covers Tesla developments at Torque News. You can follow him on Twitter or LinkedIn to stay in touch and follow his Tesla news coverage on Torque News.

Image Credit, Tesla, Screenshot