Tesla Inc. will regain access to federal EV tax credits next year following President Joe Biden’s signing of the Inflation Reduction Act, but the electric vehicle maker already has more demand than it can handle, according to CEO Elon Musk.
Tesla, General Motors and more recently Toyota are the only automakers to exhaust their quota of 200,000 EV credits under the existing incentive from a decade ago. They can now qualify for new $7,500 credits for their customers, starting next year.
Half the potential credit comes from North America assembly of battery components, starting at 50 percent of their value. The other half comes from battery minerals sourced or processed in the U.S. or with trading partners.
Musk, however, has generally opposed the idea of EV subsidies and said Tesla doesn’t need them because of booming demand.
“It has always been Tesla’s view that all subsidies should be eliminated, but that must include massive subsidies for oil and gas,” Musk wrote on Twitter in November.
Nonetheless, analysts predict Tesla should qualify for the new tax credit with the Model Y crossover, the bestselling EV in the U.S., based on new-vehicle registrations this year through June. The Model Y starts at $67,440 with shipping, meeting the $80,000 price cap for SUVs under the new subsidy, and buyers would likely get the partial $3,750 credit because Tesla sources batteries in the U.S.
But before Biden’s signing ceremony this week, Musk said Tesla’s order backlog was already too long.
Tesla suspended new orders for one of its most popular models — the long-range version of the Model 3 sedan — saying last week that it will be available in 2023. The standard-range Model 3 is still available.
“Waitlist is too long,” Musk responded to a Twitter question about the removal of the long-range Model 3 from Tesla’s online ordering form. “Will enable again as we ramp production.”
Musk also responded to a chart posted by the fan site Tesmanian that put wait times for the Model 3 at 89 days, and at 175 days for the Model Y.
“Note, we are trying to reduce delivery times as quickly as possible. Long wait times are not a good thing,” he wrote on Twitter.
Tesla’s U.S. new-vehicle registrations rose 61 percent in the first half of this year to 228,989 vehicles, according to Experian, representing a 68 percent EV market share. That was 1 percentage point higher than a year earlier, even with greater competition for EV buyers. Musk has targeted global sales growth of 50 percent a year for the foreseeable future.
Despite already booming demand, Tesla is likely one of the big winners of the new climate and tax law, with fresh EV credits starting Jan. 1 and running until the end of 2032. Even though Tesla is supply-constrained now, those credits could be useful when there is greater competition for EVs in coming years.
Tesla makes all four of its vehicles in North America — a requirement of the new credit — while many rivals do not.
“People are buying Teslas without the tax credit now,” said Loren McDonald, CEO of analysis and consulting firm EVAdoption. “They want a Tesla because they think it has the best performance and the best technology.”
EV early adopters from states such as California are less price-sensitive because they put a greater value on Tesla’s innovation, McDonald said. However, the tax credit could prove useful as the automaker seeks to conquer new buyers who are still on the fence about EVs.
For example, Tesla is set to launch its Cybertruck pickup next year out of its new Texas factory. At least some versions of the Cybertruck should qualify, according to analysts, by using cells assembled inside the same plant. The Cybertruck has not been formally priced, but rough guidelines at its introduction had most versions below the credit’s $80,000 cap for pickups.
Tesla’s No. 2 seller in the U.S., the Model 3, may not immediately qualify for the credit unless Tesla makes some changes. The standard-range Model 3 meets the $55,000 price cap for sedans but uses a Chinese-made battery, analysts said. The long-range Model 3 with a larger, U.S.-made pack is above the price cap.
Some Tesla fans have speculated on social media that Tesla could create a standard-range Model 3 with U.S.-made batteries and price it under $55,000. Whether Musk would do so is another question.
“My guess is that as long as there is more demand than supply of the Model 3 and Model Y, Musk will not go out of his way to change battery chemistry or cell sources just to qualify for $3,750” for the sedan, McDonald said. “Too much hassle for little return.”
The Cybertruck may be a different story.
“There’s going to be decent competition from the Rivian R1T, [Ford] F-150 Lightning, [Chevrolet] Silverado EV and [GMC] Hummer EV,” McDonald said. “Combined with Musk’s recent announcement that it’s going to cost more than originally promised, Tesla will probably do what it needs to qualify for at least $3,750.”
One of Tesla’s advantages under the new law is that it already has a North American supply base for batteries.
The automaker has a joint venture with Panasonic in Nevada to make cylindrical cells for its U.S.-built vehicles. That facility opened in 2016. Tesla is now ramping up its own battery production lines near its plant in Fremont, Calif., and inside its new Austin, Texas, factory. Panasonic has announced it will build a battery plant in Kansas.
The sourcing requirements of the new EV tax credit, which are complicated and will grow more stringent in coming years, are designed to push automakers to build their vehicles and batteries in North America and to source battery materials locally or through free-trade partners. Those trading partners include mineral-rich Australia and Chile.
The aim of the Inflation Reduction Act, in part, is to reduce China’s dominance of the global battery supply chain.
“At this time, it does appear that Tesla models with battery packs assembled in Nevada should be eligible for at least half of the full credit,” said Ed Kim, president and chief analyst at AutoPacific.
“Because of the free-trade agreement between the U.S. and South Korea, some Tesla models that use LG cells may be eligible for more if enough of the content of those cells is from South Korea. But at this time, the U.S. content in Tesla batteries’ supply chain is unknown to us,” Kim said, referencing battery maker LG Energy Solution.
According to consulting firm E Source, Tesla is likely be the first automaker to sell EVs that qualify for the full $7,500 EV tax credit, beginning around mid-2024. E Source said its projections are based “on current OEM manufacturing strategies and information in the Inflation Reduction Act.”
Ford, General Motors and GM’s EV partner Honda are likely to qualify for the full credit a year later, according to the E Source forecast.
Hyundai, Rivian, Volkswagen and Volvo could follow in 2026. Tesla’s luxury rivals Mercedes, BMW and Lexus may not qualify until the later part of the decade.
E Source did not offer predictions on when automakers might qualify for a partial credit.
The new EV subsidy also comes with buyer income caps of $150,000 for single filing and $300,000 for joint filing. For high-end vehicles, those may be the chief disqualifying factors rather than battery sourcing.
Tesla’s Model S sedan and Model X crossover, with starting prices above $100,000, are in short supply without the current tax credit and won’t qualify for the new one.
“The reality is that Teslas outsell everybody without the tax credit,” McDonald said. “Fundamentally, the market has said the tax credit is not that important.”