Tesla's EV tax deduction is losing its charge

If you’re mulling over a big holiday gift this year, and you’re looking to attach it to an equally big price discount, maybe a new EV is the way to go.

There’s good news and bad news on this front.

Related: Analyst casts doubt on Tesla's Model 3 timetable

The U.S. government, via the Internal Revenue Service, has awarded an expanded $7,500 tax credit to EV buyers in 2023. The break was included in the 2022 Inflation Reduction Act, giving not only the $7,500 tax break to new EV buyers but an up to $4,000 tax credit to used vehicle buyers.

The deal was good for 2023 and buyers can deduct the tax break from the tax returns they will file in 2024

On the downside, it looks like that tax credit is losing some of its luster.

Tesla  (TSLA) - Get Free Report is reporting on its Model 3 website page the vehicle’s $7,500 tax break will be curbed to $3,500 by December 31, unless the federal government intervenes and extends the tax credit. So far, there’s no evidence the government will do so.

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“Take delivery (on a new Tesla Model 3) by December 31 to guarantee the full incentive,” Tesla advises potential customers on its website.

There’s a school of thought the government is tabling the full $7,500 tax incentive to help the EV industry move more vehicles, as its green energy initiative relies on the public buying more energy-efficient cars and SUVs.

Whatever the reason, the full $7,500 EV tax credit is on the way out at a time when industry auto manufacturers are already cutting vehicle prices, largely due to declining sales.

Tesla, for example, just slashed its Model 3 prices by up to $2,250 in early October, while the Tesla Model Y LR and Performance model prices were curbed by $2,000.

Tesla is also cutting the base lease price for its Model 3 from $419 per month to $329 and is lowering its lease price for the Model Y line from $499 per month to $399.

The company hasn’t exactly had a laser-like focus on leasing, with only 5% of its EVs leased in the second quarter of 2023. 

Yet with sales in a slump and a sizable tax break cut on the chopping block starting in 2024, it’s no surprise why EV makers like Tesla are getting aggressive about discounts to attract new customers.

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