Tesla announces a price increase potential customers will hate
Even after price cuts, a new Tesla Model 3 might soon get more expensive.
Tesla (TSLA) - Get Free Report said it expected reductions in the $7,500 federal tax incentive that is currently applied to several of its vehicles.
In an announcement on its website Oct. 12 the electric-vehicle leader said it expected the tax incentive for its most popular vehicle, the Model 3 sedan, to drop in half to $3,750 after Dec. 31.
For two of the company's other models — the Model X full-size SUV and Model Y midsize SUV — the warning about a potential tax-credit reduction is more vague. Each vehicle's page urges consumers to take delivery by year-end in order to receive the full $7,500 tax credit.
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The reason for this expectation lies in the EV-tax-credit rules of the Inflation Reduction Act. These restrictions limit eligibility to cars with battery components that come from the U.S. or a free trade partner.
The Model 3 was not initially eligible for the $7,500 tax credit. Around six weeks after the IRS released battery guidance on EVs, Tesla said the Model 3 indeed qualified for the credit.
This potential increase in total cost to consumers comes on the heels of the company's third-quarter production and delivery report, which missed Wall Street expectations.
Following the report, which saw Tesla complete around 435,000 deliveries, the Austin group continued to cut the prices of some versions of its popular Model 3 and Model Y vehicles.
Tesla Model 3 prices are down more than 26% year-over-over, according to Cox Automotive. A 2022 Tesla Model 3 Long Range model went for $55,990 before incentives. The same model is available today on Tesla's website for $33,990.
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The ongoing price cuts that Tesla has engaged in have hurt the company's margins and pushed against stock growth, frustrating some investors.
"That margin outlook may be a disappointment for some, present company included, that were looking for margins to slowly improve this year," Gene Munster, managing partner at Deepwater Asset Management, a Tesla investor, said in July.
Shares of Tesla have more than doubled (up 114%) this year.
The company is slated to report third-quarter earnings Oct. 18.
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