The landscape is changing yet again for the Tesla Model 3, if you’re in the market.
There’s good news and bad news if you’re shopping for a new electric vehicle in 2024. On one hand, recent rules changes will allow you to take the $7,500 federal tax credit (or at least part of it) right off the top as an instant rebate. However, on the other hand, you may not be able to claim as much in the first place. At least, that appears to be the case if you’re looking at a Tesla Model 3, as the automaker says two of its trims will no longer be eligible for the full credit as of January 1. The company reflected that change on their retail site, when you go to order your new vehicle.
Per Tesla’s warning, the base rear-wheel drive Model 3 and the Long Range will only get a $3,750 tax credit, for deliveries taken after December 31, 2023. The Model 3 Performance, however, will still get the full amount.
Buyers shopping a Tesla Model 3 in 2023 have enjoyed that full $7,500 tax credit once again, thanks to the reformed program under the Inflation Reduction Act (or IRA). There’s a catch in the legislation, though, ostensibly aimed to prevent vehicles with battery components from “a foreign entity of concern” from getting taxpayer incentives. The Department of Energy announced new, stricter rules in December, in which cars with battery contents from a company owned (more than 25%, at least) by one of those foreign entities, including China, Russia, North Korea and Iran, will not be eligible for the tax credit.
Under the Biden Administration’s clarified guidance, even companies that license Chinese technology, without necessarily sourcing actual components from China, can still be barred from the $7,500 federal incentive.
Do you qualify for the EV tax credit?
Apart from the sourcing and final assembly requirements, the federal tax credit is also means tested. That means any individual making more than $150,000 per year (or $225,000 as head-of-household) or any married couple filing jointly making more than $300,000 per year are ineligible to receive the credit at all.
Then there’s the stipulation on the type of vehicle. Passenger cars, including the Tesla Model 3, are no longer able to receive the tax credit once the price crosses the $55,000 threshold. For SUVs like the Model X and Y, that limit increases to $80,000. The Tesla Model S, for example, is entirely ineligible to receive the tax credit, since even the most affordable model starts at $74,990, which is well above the $55,000 cutoff.
A couple other important items to note: Tesla may ultimately adjust its pricing in the wake of any tax credit changes, as it did moving into 2023. As the refreshed ‘Highland’ Model 3 is also set to arrive in the US soon, now may be a good time to snag a current-gen model for a solid deal (or wait for the new one, if you’re interested in having the latest and best).
But hang on…should I even buy a new Tesla?
Although the potential tax credit changes can evoke a FOMO moment, there’s another angle to consider if you’re shopping an EV: going on the used market. Over the past few years, that hasn’t really yielded enough value against just buying a new model with the tax credits. That said, things have changed in the past year, as the EV market slows down due to cooling demand, relatively high prices and high interest rates on new car loans.
Year-over-year, research firm iSeeCars notes that Tesla Model 3 prices fell 30.5% on average in October, from the same point in 2022. That means the same vehicle that would have been $48,171 to buy second-hand now costs $33,455. That’s much more palatable, not to mention any near-new Model 3 is still going to be well within its drive unit and battery warranty.
That may not be great news if you’re looking to sell your EV, but if you’re looking to buy, it’s definitely worth weighing out new versus used. Or, if you aren’t quite ready to make the EV jump, tax credit or not, hybrid models like the revamped Toyota Prius are sparking higher demand in the interim. We compare the Model 3 to the new Prius below:
