Tesla Inc (NASDAQ:TSLA)
When the United States government began offering a tax credit of $7,500 to individuals who purchase electric vehicles, the automotive industry was ecstatic. It’s possible that the industry isn’t really sure how it feels right now.
EV news portal Electrek claimed on Thursday that Tesla (NASDAQ:TSLA) thinks its lowest-priced Model 3 sedan to lose eligibility for the entire $7,500 tax credit since the car employs LFP batteries produced from China. The post cited persons who were familiar with the subject.
A request for comment was sent to both Tesla and the Internal Revenue Service, which is the government agency that is responsible for applying for the tax credit. Neither of them immediately responded.
LFP batteries, which stand for lithium-iron-phosphate batteries, have a lower price point, but their power output is lower for the same volume. The automotive industry has a tendency to use them in electric vehicles that have a shorter range per charge.
It would be unexpected to be forced to give up the entirety of the credit, which was authorized by the Inflation Reduction Act. Where batteries and battery parts are sourced from, as well as where battery packs and vehicles are constructed, are among the many elements that determine whether or not a credit is awarded. The Model 3 is put together in Fremont, which is located in California.
The base price of a Model 3 with rear-wheel drive is approximately $43,000. The starting price for the performance version of the 3 is approximately $54,000, and it is likely that buyers would still be eligible for the $7,500 credit.
By equipping the base Model 3 with more expensive batteries imported from the United States, Tesla would be able to resolve any potential problems with the tax credit caused by LFP batteries. It is very likely that the additional expense would be a significant fraction of the 7,500-dollar profit. A modification of this nature would also be contingent on Tesla’s ability to source sufficient quantities of batteries from its production facilities in Nevada and Texas.
That is not the first time that the automotive industry and consumers have found IRS policies to be difficult to understand. After the Inflation Reduction Act was passed, the Internal Revenue Service initially granted full credit to all qualified electric vehicles, regardless of the location from which the battery or battery parts originated. That was encouraging information for the sector as a whole.
Another source of bafflement was the Internal Revenue Service’s (IRS) decision to first classify as sedan-like vehicles the 5-seat versions of the Tesla Model Y and the Ford Motor (NYSE:F) Mustang Mach E. In order to be eligible for the electric vehicle tax credit, this meant that they must not be sold for more than $55,000. The price of the Model Y’s entry-level trim is now around $55,000. There is a price range of approximately $49,000 to $62,000 for a Ford Mach E.
However, the Internal Revenue Service (IRS) deemed other cars of comparable size to be SUVs. In order to qualify for the EV tax credit, SUVs and trucks can have a price tag of up to $80,000. Later on, the organization changed its mind and decided to consider Mach Es and Model Ys the same way as SUVs for the purposes of tax benefits.
As the Internal Revenue Service works through a variety of difficulties, including the origin of batteries, it is anticipated that it will revise regulations sometime within the next few weeks. This indicates that the list of credits that can be earned by various electric vehicles may be subject to further modification. It creates a sense of unpredictability among investors and may result in minor adjustments to the prices of electric vehicles. It is not expected that this will result in significant changes in purchasing behavior or EV market share.
If prospective buyers of automobiles are interested in purchasing an electric vehicle (EV) in the year 2023, they should think about doing so before the end of the first quarter, before any alterations are made to the currently available list of qualified vehicles. In that case, there is a chance that they will not receive the tax credit that they were looking for.
The stock of Tesla, on the other hand, appears to be immune to stories concerning concerns regarding tax credits. In Thursday’s early trade, shares of Tesla are showing a 3.4% gain. Both the S&P 500 (SPX) and the Nasdaq Composite (COMP) have seen gains of 0.5 and 2.2 percentage points, respectively. After suffering a loss on Wednesday as a result of the Federal Reserve’s decision to boost interest rates by 0.25 percentage points, stocks are currently on the rebound. Tesla stock plummeted 3.3% Wednesday.
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