Tesla Model 3 Tax Credit to be Halved in 2024 Due to New IRA Guidelines

Restrictions on EVs with battery components from 'foreign entities of concern' lead to reduction in federal tax credit for Tesla's Model 3 RWD and Long Range.

Tesla's Model 3 Rear-Wheel Drive and Model 3 Long Range will no longer qualify for the full $7,500 federal tax credit starting in January 2024, with the tax credit being cut in half to $3,750.
The reduction in tax credit is due to new guidelines under the Inflation Reduction Act (IRA), which restricts tax credits for electric vehicles (EVs) containing battery components from 'foreign entities of concern' (FEOCs), including China, Russia, North Korea, and Iran.
Starting in 2024, an eligible clean vehicle may not contain any battery components that are manufactured or assembled by a FEOC, and in 2025, an eligible clean vehicle may not contain any critical minerals that were extracted, processed, or recycled by a FEOC.
Despite the reduction in federal tax credit, state-wide EV incentives can still bring the price of a Model 3 RWD down significantly, with the vehicle potentially costing as low as $22,590 in states like Colorado or Vermont.
Tesla CEO Elon Musk has previously noted that many of the incentives in place for EVs do not make Tesla vehicles immediately cheaper as these are difficult for the average person to access.