Tesla Made All Model 3 Vehicles Eligible For The ,500 IRA Tax Credit. Now It’s Backtracking.

Tesla (TSLA) signaled Wednesday it expects a reduction next year in the $7,500 federal tax credit for all Model 3 vehicle trims. This comes just a month after the global EV giant mysteriously got every Model 3 vehicle eligible for full tax credit under the Inflation Reduction Act (IRA). Tesla stock edged up Wednesday.


The company posted a banner on its website Wednesday morning declaring that the $7,500 federal tax credit is available for all Model 3 trims. However, Tesla added “reductions likely after Dec. 31.”

Tesla’s proclamation that IRA tax credit reductions could come in 2024 for Model 3 vehicles is not present on the Model Y website page.

The stock edged up 1.6% to 274.11 Wednesday during market trade. Shares moved up a fraction Tuesday to 269.79.

In early June, Tesla got all Model 3 vehicle trims eligible for the full $7,500 tax credit. The model previously only qualified at the $3,750 level. Tesla has not disclosed how it brought the Model 3 into alignment with IRA requirements for the full tax credit.

The Internal Revenue Service (IRS) on June 6 confirmed the change on its site. The IRS currently maintains that all Model 3 and Model Y vehicles qualify for the $7,500 tax credit.

Model 3 Tax Credit Doubles

The Biden administration said on March 31 that vehicles eligible for the full $7,500 tax credit must have batteries with specific quantities of components manufactured in North America and critical minerals sourced in the U.S. or from specified countries.

Vehicles that meet only one of the critical minerals or battery component requirements are eligible for a $3,750 tax credit. At the time, the base rear-wheel drive Model 3, with its battery from China, did not qualify for the full tax credit.

The Eligibility Question

Tesla has used the lithium iron phosphate (LFP) batteries from China’s CATL for the base Model 3. However, after the eligibility switch in early June, CATL shot down rumors that Tesla ended their relationship.

Jonas told investors in June that Tesla may have switched to manufacturing Model 3 battery packs in the U.S. while still using China-made battery cells. The analysts also floated the idea that, with Shanghai Tesla exporting to Canada, it could be freeing up U.S. battery production for local deliveries.

Or, Jonas said, it simply could be “regulatory semantics.” Under guidance issued by the U.S. Treasury, EV manufacturers can average the qualifying critical mineral content used over a limited period of time.

Jonas said this language means Tesla could produce enough qualifying Model 3 batteries at its Fremont plant to offset the Model 3 rear-wheel drive trim’s China-made battery.

Tesla Stock: Earnings Upcoming

TSLA shares are up around 120% in 2023 and 164% from their Jan. 6 low. However, Tesla stock is still well off its all-time high of 414.50, hit in November 2021.

On June 2, Tesla cleared a 207.79 buy point from what’s either a cup or a double-bottom base. That was part of a record 13-session win streak for Tesla, with the last 12 coming on above-average volume. Shares paused in late June amid the broader market pullback but bounced from near the 21-day lines.

TSLA leapt 6.9% to 279.82 on July 3 following the strong Q2 delivery figures, clearing a brief pause to hit a nine-month high.

Tesla announces second-quarter financials on July 19. Last week, Tesla reported record global deliveries, as price cuts, tax credits and discounts propelled demand well above Wall Street forecasts.

Tesla deliveries ran to 466,140 in the second quarter, sprinting past Q1’s record 422,875 and Q4’s 405,278. That easily beat Q2 estimates of around 445,000, according to FactSet.

Model 3 and Y deliveries hit 446,915 in Q2. Model S and X deliveries picked up to 19,225.

Production hit 479,700, exceeding deliveries once again, even with Tesla curbing output below capacity.

The stock ranks third in IBD’s automaker industry group. It has a 98 Composite Rating out of 99. Tesla has a 95 Relative Strength Rating and its EPS Rating is 93 out of 99.

Please follow Kit Norton on Twitter @KitNorton for more coverage.


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