NASDAQ title Tesla shares: tax credit for Model 3 is likely to be reduced next year

• Tax credit for Model 3 expected to reduce in 2024
• New guidelines for tax credits proposed
• Tesla may no longer be able to meet procurement requirements

Tesla warns: tax credit is expected to be reduced in 2024

Tesla writes on its website: “Customers who take delivery of a qualified new Tesla vehicle and meet all federal requirements are eligible for a tax credit of up to $7,500.” However, according to the US electric car maker, the tax credit for the Model 3 Rear-Wheel Drive and Model 3 Long Range will be reduced by half to $3,750 on January 1, 2024. Tesla recommends: “Take delivery by December 31st to be eligible for the full tax credit.” The US electric car manufacturer points out the likely upcoming change in a banner on the Tesla website.

New guidelines for tax credits proposed

However, in order for customers to receive a tax credit when purchasing a new electric car, car manufacturers must first meet certain requirements, such as the place of production of the vehicle and battery and the procurement of materials. According to The Verge, the reason for the reduction in the tax credit for Tesla’s Model 3 could be the fact that Tesla will probably not be able to meet the procurement requirements under the Inflation Reduction Act (IRA), as the Treasury Department issued new guidelines in early December proposed for tax credits within the IRA. These could also affect the tax credits for the Model Y and Model X.

Foreign Entity of Concern

The Department of Energy’s guidance includes a proposed interpretation of the term Foreign Entity of Concern (FOEC) “for purposes of the agency’s BIL battery manufacturing and recycling grants.” It is “proposed that a company incorporated in, having its headquarters in, or carrying out relevant activities in a ‘covered country’ (as defined by law) shall be classified as an FEOC,” a notice on the website said of the White House. In addition, the guidance would “also classify as a FEOC a company that has at least 25 percent of the voting rights, board seats, or equity interests owned by the government of a covered country (including a senior official of such government), regardless of where the relevant activities take place.” Finally, the guidance proposes to address how technology licenses or other contractual arrangements might be viewed as vectors of control by the government of a covered country in certain circumstances, such as where a contract to license a technology effectively gives a FEOC control over production.

In parallel, the Treasury Department and the Internal Revenue Service (IRS) announced “a Notice of Proposed Rulemaking (NPRM) and additional subregulatory guidance to implement DOE’s proposed FEOC interpretation in connection with the 30D Clean Vehicle Tax Credit,” it said said in a statement on the White House website. Under the Excluded Entity Restrictions, vehicles will no longer be eligible for the Clean Vehicle Credit “if the battery contains components manufactured or assembled by a Foreign Entity of Concern (FEOC) or contains relevant critical minerals” approved by a FEOC “extracted, processed or recycled”.

Delivery destination in focus

As The Verge reports, Tesla also has another reason to warn customers about the tax credit reduction. The company is trying to deliver as many cars as possible before the end of the year in order to achieve its annual goals. In its latest figures presentation, Tesla reiterated its delivery target of around 1.8 million vehicles this year.

Editorial team finanzen.net

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