Electric car maker Tesla (TSLA) announced on its official website late Tuesday that its Rear-Wheel Drive Model 3 vehicles and those with the Long-Range electric battery option will no longer be eligible for the $7,500 federal tax incentive after Dec. 31. This change is due to new regulations stemming from the U.S. Inflation Reduction Act.
Earlier this month, the U.S. Treasury Department issued new rules imposing limits on the sources of battery materials, effective Jan. 1. These limitations are aimed at reducing the American electric vehicle industry's dependence on materials from China.
"According to the latest interpretation of the new Inflation Reduction Act regulations, the tax incentive will not be available for the Rear-Wheel Drive Model 3 and Long-Range Model 3 from December 31, 2023. To receive the full tax incentive, customers must pick up the vehicle by December 31."
In April, the Treasury Department provided updated regulations that reduced tax credits for Tesla's Rear-Wheel Drive Model 3 to $3,750. However, it is estimated that other Tesla models will continue to receive full tax incentives.
In July, Tesla suggested that its $7,500 federal tax incentives for its Model 3 electric vehicles could be reduced by the end of the year.
Currently, in order to receive the $3,750 EV tax credit, at least 50% of the value of battery components must be manufactured or assembled in North America. In addition, to qualify for the tax credit, at least 40% of the value of the essential minerals used in batteries must come from the United States or a country that has a free trade agreement with the United States.
TSLA's stock price fell 1.12% in premarket trading on Wednesday.