Tesla is currently offering its Model 3 at unprecedented low prices. However, a significant change is on the horizon regarding federal tax credits, which could impact the affordability of Tesla’s vehicles, including the anticipated budget-friendly “Model 2.”
The Present Scenario: Model 3’s Attractive Pricing
As of December 2023, Tesla has significantly reduced the prices of new Model 3s in inventory, with figures threatening to dip below $36,000, and occasionally even $35,000. This pricing shift is particularly noteworthy when considering the additional financial incentives available:
- Federal Tax Credit: A $7,500 federal tax credit is currently applicable but is set to expire at the end of the month.
- State Rebates: Various states offer additional rebates, further reducing the cost (as detailed by Electrek).
- Upcoming Model 3 “Highland”: With a new version of the Model 3 on the horizon, Tesla may be aiming to clear its inventory in anticipation of the new model’s arrival in early 2024.
Selecting a rear-wheel drive (RWD) Model 3 can bring the price down to around $25,000, factoring in the full federal tax credit and a state rebate of $2,500. This pricing strategy positions the Model 3 below the cost of a Toyota Camry Hybrid and significantly under the Toyota Rav4 Prime, even after accounting for federal tax credits and state rebates. However, it’s worth noting that the Model 3 still doesn’t match the affordability of the 2023 Chevy Bolt, a pure EV.
Impending Changes: Federal Tax Credit Adjustments
Starting January 1, 2024, the landscape of federal tax credits for EVs is set to change significantly. The Biden administration’s new regulations, aimed at reducing reliance on Chinese battery components, will affect Tesla’s Model 3 Rear-Wheel Drive and Model 3 Long Range. These models will no longer qualify for the full $7,500 federal tax credit and will instead be eligible for only a $3,750 credit.
Under the Inflation Reduction Act (IRA) rules, vehicles must meet specific requirements regarding the source of battery components to be eligible for the tax credit. For the first half of the credit ($3,750), fifty percent of the battery’s components must be manufactured or assembled in the United States. Additionally, at least 40% of the critical minerals used in the batteries must come from the U.S. or its free trade partners, excluding China.
The Future Prospect: Model 2 and Market Dynamics
While the Model 3 remains an affordable option for now, Tesla is also working on a more budget-friendly vehicle, often referred to as the “Model 2.” This vehicle, anticipated to be produced at high volumes and low cost, could significantly expand Tesla’s market reach.
The idea of a truly affordable Tesla has stirred excitement in the automotive industry. Sandy Munro, a car industry veteran and owner of Munro & Associates, believes that such a vehicle could significantly disrupt the market. He likens it to the Volkswagen Beetle, envisioning it as a “people’s car” that is accessible to a wide audience.
However, the upcoming reduction in federal tax credits for Tesla’s models, including the potential Model 2, marks a critical moment in the EV industry. For Tesla, this development poses a challenge in maintaining competitive pricing, especially as competition in the EV market increases.