Tesla Model 3 Rear-wheel Drive Tax Credit to be reduced by Friday

Tax credits for Tesla Inc TSLA Model 3 rear-wheel drive are expected to be reduced by Friday.

What Happened: Tesla updated its Model 3 configuration page in the U.S., saying that the $7,500 EV credit is expected to be reduced for Model 3 Rear-Wheel Drive by March 31. Customers who take delivery of a qualified new Tesla and meet all federal requirements are eligible for a tax credit up to $7,500. The credit is expected to be reduced for Model 3 Rear-Wheel Drive by March 31, according to the website.

Last week, it was reported that Tesla told its employees that it expects to lose the full $7,500 federal tax credit on the Model 3 Standard Range as the batteries come from China.

The Model 3 Standard Range, although manufactured in the U.S., uses battery packs made using LFP battery cells built in China.

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In order to be eligible for up to half the tax credit under the tax credit scheme, batteries have to be made in North America. The materials must be sourced from countries with a free trade agreement with the U.S.

The U.S. Treasury Department did not issue guidance on battery sourcing requirements in time for the new tax credit system, which came into effect in January.

The guidance was postponed until the second quarter and is expected to be completed by Friday. This gave a few EVs that don't meet the new requirements, including Model 3, a few months of eligibility for the tax credit.