The price tag on Tesla’s cheapest EV is going up in 2024

In the US, Tesla’s Model 3 still qualifies for the full $7,500 federal tax credit on electric vehicles—but not for long.

What inspired Elon Musk’s design for Tesla’s Cybertruck?

Cars that take delivery by Dec. 31 are eligible for the entire credit under president Joe Biden’s Inflation Reduction Act (IRA). After that, the tax credit “will reduce to $3,750 for Model 3 Rear-Wheel Drive and Model 3 Long Range,” a banner on Tesla’s website warns.

While the world’s largest EV maker doesn’t cite a reason for the impending drop, it probably has to do with fine-tuning of the IRA.

Tesla’s most cost-effective vehicle may no longer meet sourcing requirements after the US Treasury Department’s Dec. 1 guidance became more stringent on involvement by a foreign entity of concern (FEOC), which the Department of Energy describes as one “owned by, controlled by, or subject to the jurisdiction or direction of” governments including China, Russia, North Korea, and Iran.

Starting in 2024, an eligible clean vehicle “may not contain any battery components that are manufactured or assembled by a FEOC,” the Treasury Department says. The tax credit change suggests that Tesla’s battery materials don’t comply.

The following year, even more models could be affected. In 2025, an eligible clean car “may not contain any critical minerals that were extracted, processed, or recycled by a FEOC,” the Treasury Department notes.

Tesla and the IRA, by the digits

$38,990-$50,990: Price range for the Tesla Model 3, from the most basic to the top-performing car, as of October

1.8 million: Cars Tesla aims to sell in 2023. Analysts’ forecasts peg sales coming in just under that, at 1.797 million, but the recent tax credit warning could create a rush.

60%: For an EV to qualify for the reduced $3,750 tax credit, share of the value of its battery components that must be manufactured or assembled in North America starting in 2024.

50%: Starting in 2024, share of the value of the critical minerals in an EV battery that must be extracted or processed in the US or in a country with which it has a free trade agreement, or be recycled in North America.

1 million: Global sales of the Model 3 as of June 2021, making it the first electric car to reach that milestone. 

20 million: Global search volume for the Tesla Model 3 last year, when it was the world’s top-searched EV. The Tesla Model Y, a crossover SUV based on the Model 3 chassis that has become the company’s best-selling car, racked up fewer than 14 million searches in 2022.

More than half: Share of the Model 3’s interior and exterior design replaced in its recent refresh, according to Tesla. That includes a revamped interior, rear-seat entertainment, and longer range, among other features. The new Model 3 launched in the UK, Germany, Australia, and China before driving onto home turf in the US.

548: Green jobs that Tesla recently listed on LinkedIn—the most of any US company, according to Resume.io.

Person of interest: Elon Musk

If there’s one big speed bump on Tesla’s road to success, ironically, it’s the company’s founder.

Since Tesla chief Elon Musk bought and took charge of Twitter—now X—Tesla investors have warned that his distracted leadership and Tesla share sales are hurting the EV brand. His frequent tirades on X have damaged Tesla’s reputation, turning some owners and potential shoppers against the carmaker.

After a nearly four-year buildup, Tesla finally hosted a launch party for its highly anticipated Cybertruck last week. The new vehicle ruffled some feathers with a higher-than-expected price and lower-than-expected range. In addition to being underwhelming, the Cybertruck took a back seat to Musk’s antics.

Around the same time, Musk told advertisers pulling away from X to “go fuck themselves” at a New York Times conference. His foul-mouthed comment drew 1.3 million readers, while the Cybertruck news garnered fewer than 886,000, according to analysis that PR measurement data platform Memo shared with Quartz.

“Tesla’s big Cybertruck event was completely overshadowed by Elon Musk telling Twitter advertisers to ‘F’ themselves. In fact, most people read specifically about the downfall of the famous CEO and how the fallout will negatively impact the once-thriving social media platform,” said Katrina Dene, head of communications at Memo. “Even though the Cybertruck event saw more media attention, seeing how many people are reading about each event in the same week makes it very clear that Tesla is paying an Elon tax.”