Cost of Tesla’s Most Affordable Electric Vehicle Set to Increase in 2024

Key Highlights
  • Tax Credit Changes for Tesla Model 3:
    Tesla’s Model 3 currently qualifies for a full $7,500 federal tax credit in the U.S., but this is set to decrease to $3,750 after December 31, affecting the Rear-Wheel Drive and Long Range models.
  • Reason for Tax Credit Reduction:
    The reduction in the tax credit is likely linked to adjustments in the Inflation Reduction Act (IRA), possibly due to new sourcing requirements outlined by the U.S. Treasury Department, making compliance challenging for Tesla.
  • Impact of New Sourcing Requirements:
    Starting in 2024, EVs must have 60% of battery components manufactured in North America. Tesla’s battery materials may not meet these requirements, potentially affecting tax credits and posing challenges for the company.
  • Tesla Model 3 Sales Strategy:
    Despite a sales target of 1.8 million cars for 2023, analysts predict slightly lower sales. Warnings about tax credits could influence purchasing dynamics, adding complexity to Tesla’s sales strategy.
  • Challenges Involving Elon Musk and the “Elon Tax”:
    Elon Musk’s leadership challenges, including distractions from Twitter (now X) and controversial statements, have raised concerns among investors. The potential negative impact on Tesla’s public image is referred to as the “Elon tax.”
Cost of Tesla's Most Affordable Electric Vehicle Set to Increase in 2024
A Tesla electric car is charged at a charging station at a car park. (Ina Fassbender / AFP via Getty Images)

In the United States, Tesla’s Model 3 currently qualifies for the full $7,500 federal tax credit on electric vehicles. However, this benefit is set to change soon.

If you get your car by December 31, you can still get the full tax credit under President Joe Biden’s Inflation Reduction Act (IRA). But after this date, the tax credit for Model 3 Rear-Wheel Drive and Model 3 Long Range will decrease to $3,750, as mentioned on Tesla’s website.

The reason for this reduction is not explicitly stated by Tesla, but it is likely related to adjustments in the IRA. One possible factor is that Tesla’s most affordable vehicle may not meet the new sourcing requirements outlined in the US Treasury Department’s guidance issued on December 1. The guidance is stricter about involvement by a foreign entity of concern (FEOC), which includes entities “owned by, controlled by, or subject to the jurisdiction or direction of” countries like China, Russia, North Korea, and Iran.

Starting in 2024, eligible clean vehicles should not have battery components manufactured or assembled by a FEOC, according to the Treasury Department. This suggests that Tesla’s battery materials may not comply with these requirements.

Looking ahead to 2025, additional models could be affected. The Treasury Department specifies that an eligible clean car should not contain critical minerals that were extracted, processed, or recycled by a FEOC.

Tesla’s Model 3 Pricing and Sales Targets

In October, the Tesla Model 3 hit the market with a price range spanning from $38,990 to $50,990, offering a variety of options for potential buyers. The company set an ambitious sales target for 2023, aiming to sell 1.8 million cars. Analysts, however, forecast slightly lower sales, anticipating around 1.797 million. Recent warnings about tax credits could potentially spur a surge in purchases, adding an extra layer of dynamics to Tesla’s sales strategy.

Tax Credit Criteria for Electric Vehicles

To incentivize the purchase of electric vehicles, the U.S. government offers tax credits. For an EV to qualify for a reduced $3,750 tax credit, 60% of its battery components must be manufactured or assembled in North America starting in 2024. This highlights a push towards regional manufacturing and promotes the growth of the electric vehicle industry in North America.

Localization of EV Battery Components

Another significant requirement coming into effect in 2024 is that 50% of the value of the critical minerals in an EV battery must be sourced from the U.S. or a country with which it has a free trade agreement. Alternatively, the minerals can be recycled in North America. This emphasis on local sourcing aims to reduce dependence on foreign resources and enhance the sustainability of electric vehicles.

Model 3’s Milestones and Redesign

The Model 3 has been a trailblazer in the electric car market, achieving global sales of 1 million units by June 2021, marking a historic milestone for electric vehicles. In its recent refresh, more than half of the Model 3’s interior and exterior design was revamped by Tesla. This includes a redesigned interior, rear-seat entertainment, and an extended range, among other features. The updated model made its debut in several international markets before hitting U.S. soil.

Tesla’s Commitment to Green Jobs

Tesla continues to contribute to the green job sector, recently listing 548 green job opportunities on LinkedIn. This positions Tesla as the company with the most extensive array of green job offerings in the U.S., according to This commitment aligns with the broader industry trend towards sustainability and environmentally conscious practices.

Challenges Involving Elon Musk

However, Tesla’s journey is not without challenges, and one significant concern revolves around the company’s founder and chief, Elon Musk. Musk’s acquisition and leadership of Twitter (now X) have raised eyebrows among Tesla investors. Distracted leadership and Musk’s sale of Tesla shares have fueled worries about their potential negative impact on the overall brand of the electric vehicle giant.

The Cybertruck Launch and Media Dynamics

Tesla’s long-anticipated Cybertruck launch finally happened, but it wasn’t without controversy. The vehicle faced criticism for its higher-than-expected price and lower-than-expected range. Unfortunately, the Cybertruck’s unveiling was overshadowed by Elon Musk’s controversial statements on Twitter. Musk’s comments, which drew considerable attention, managed to eclipse the media coverage of the Cybertruck launch itself. This apparent diversion of attention has led some to coin the term “Elon tax,” highlighting the potential repercussions of Musk’s actions on Tesla’s public image.

In navigating these diverse facets of the market, Tesla remains a key player in the electric vehicle industry, shaping the landscape with technological advancements, ambitious sales targets, and, inevitably, the influence of its high-profile leader, Elon Musk.

Read Original Article on Quartz

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