Here's How Tesla Model 3 Can Beat Toyota Camry in Price With Federal Tax Credits

Electric carmaker Tesla has made significant adjustments to its battery supply chain, resulting in all variants of the Tesla Model 3 qualifying for federal US electric vehicle tax credits. This move, combined with other tax incentives, has the potential to bring down the price of the Model 3 to a level below that of a Toyota Camry.

Here are more details on the confirmation by the Biden administration of full electric vehicle tax credits for all Tesla Model 3s and the strategies employed by Tesla to boost Model 3 sales. 

Biden Administration Confirms Full Electric Vehicle Tax Credits for All Tesla Model 3s

The Biden administration has recently confirmed that all Tesla Model 3 vehicles now qualify for $7,500 electric vehicle consumer tax credits. Initially, only two versions of the Model 3 were eligible for half of the credits. However, with new battery rules that took effect in April, the credit for the Model 3 Standard Range Rear Wheel Drive and Long Range All-Wheel Drive was reduced to $3,750. Nevertheless, Tesla has reinstated full credit eligibility for all versions of the Model 3, providing significant incentives for potential buyers.

New Battery Rules and Credit Reductions for Model 3 Standard Range and Long Range

The implementation of new battery sourcing rules in April resulted in a reduction of credits for the Model 3 Standard Range Rear Wheel Drive and Long Range All-Wheel Drive versions. The credit for these models was lowered to $3,750. However, Tesla has since adjusted its battery supply chain to meet the requirements for federal subsidies on  “American-made” electric vehicles, potentially contributing to the restoration of full credit eligibility for all Model 3 versions.

Tesla Restores Full Credit Eligibility for All Model 3 Versions

Tesla's website recently confirmed that all versions of the Model 3 now qualify for the full $7,500 federal tax credit. This development is expected to make the Model 3 more affordable for consumers, potentially boosting its sales.

Potential Price Drop with Federal and California Tax Credits

Taking into account the $7,500 federal tax credit and an additional $7,500 from the California tax rebate, the price of a Model 3 could significantly decrease. Depending on income and other requirements, the price may fall from $40,240 to $25,240, making the Model 3 an attractive option compared to the Toyota Camry, which starts at $26,320.

Supply Chain Tweaks to Meet Federal Subsidy Requirements

Experts have speculated that Tesla made adjustments to its battery supply chain to fulfill the requirements for federal subsidies related to battery minerals and components. There are indications that Tesla may have switched from CATL to Panasonic or LG Energy Solution as battery cell suppliers for its US-made Model 3 versions. This change could be attributed to the subsidy value outweighing the potential savings from using cheaper iron-based cells.

The Inflation Reduction Act of 2022

The Inflation Reduction Act of 2022, also known as Public Law 117-169, has brought about significant changes to the Qualified Plug-in Electric Drive Motor Vehicle Credit (IRC 30D), now called the Clean Vehicle Credit. The act has introduced battery requirements that have a profound impact on the eligibility for this tax credit. Starting April 18, 2023, the Clean Vehicle Credit provisions have established stringent criteria for determining vehicle eligibility, encompassing sourcing obligations related to critical mineral extraction, processing, recycling, and battery component manufacturing and assembly.

Vehicles that meet either the critical mineral (40% for the year 2023) or % value of the battery component (50% for the year 2023) are eligible to claim a $3,750 tax credit, while those satisfying both criteria can receive a total tax credit of up to $7,500.

Tesla's Battery Cell Suppliers 

Tesla has relied on CATL's LFP battery cells for its Model 3 Rear Wheel Drive and nickel-based cells from LG Energy Solution for its Model 3 Long Range.

The affirmation by the Biden administration regarding the full electric vehicle tax credits for all variants of Tesla's Model 3 brings a substantial improvement to the affordability of these vehicles. The reinstatement of the $7,500 federal tax credit, along with other tax incentives, has the potential to establish the Model 3 as a more competitive option in terms of pricing when compared to traditional internal combustion engine vehicles.