The Inflation Reduction Act of 2022 has established a substantial tax credit for select electric vehicles, reaching a maximum of $7500 for qualified buyers. This credit is currently available for vehicles delivered, but there is a possibility of the credit being lowered come March 2023. Determining whether a vehicle qualifies for the tax credit established by the Inflation Reduction Act of 2022 involves some considerations, including the vehicle’s energy efficiency measured in kilowatt-hours, its battery capacity, its manufacturer’s location, the origin of the materials used in its battery, and the place of its final assembly. Currently, the definitive guidelines for assessing a vehicle’s eligibility for this credit have not been fully established, meaning there’s a sense of ambiguity until March. This uncertainty presents an opportunity for buyers interested in purchasing a Tesla. To ensure they can take advantage of the current tax credit amount, buyers must put in their orders for a Tesla before March. This is because when you order a Tesla, you lock in the current price, which can’t be changed. Additionally, dealerships do not affect Tesla cars, meaning there are no price markups. They determine their costs and can change them at any time, a benefit that comes with purchasing a Tesla vehicle.
The current electric vehicle tax credit regulations require that the vehicle be purchased for personal use, not resale. Additionally, the car must be primarily used in the United States, and there are income limitations. These income limitations, known as adjusted gross income (AGI), determine the income an individual or household can make to be eligible for the full $7500 tax credit. Additionally, there are price caps for eligible vehicles. For example, the Model 3 and the Model Y, with five seats, are currently under a price cap of $55,000. This is an essential factor to consider when purchasing an electric vehicle. It’s worth noting that when the IRS announced the price limits for the EV tax credit, the prices of electric cars dropped significantly. Disappointment over Tesla’s decision to price the Model Y at $55,000—a price range typically reserved for sedans—has been voiced by numerous customers. Some people think it should have been classified as an SUV instead, which would have kept the price under $80,000. If this were the case, Tesla wouldn’t have felt compelled to lower the costs of their vehicles. Tesla has a history of strategically pricing their cars based on tax credit eligibility, which is maybe why it reduced the prices of the Model Y and other vehicles.
The Model 3 with rear-wheel drive is now available for as little as $45,600. This price includes additional fees such as the destination fee, which is currently $1,390, and the non-refundable order fee for buyers who qualify for the $7,500 tax credit, the price of the vehicle drops to $38,000. Meanwhile, the Model 3 Performance’s price has fallen from $55,600 to $48,000 after the federal tax credit was applied, which is excellent news for buyers looking to purchase the Performance trim as they can now get it at a much lower price.
| Model 3 | Model Y | |||
| Standard Range | Performance | Long Range | Performance | |
| Old Price | $46,990 | $62,990 | $65,990 | $69,990 |
| New Price | $43,990 | $53,990 | $52,990 | $56,990 |
| With Tax Credit | $36,490 | $46,490 | $45,490 | $56,990 |
| Savings | $10,500 | $16,500 | $20,500 | $13,000 |
Interested buyers are excited to see that the Long Range Model Y is also cheaper. It previously sold at $55,440. The Model Y Long Range Dual-Motor sells at $54,600, following an increase in its price tag last year. If eligible for the full tax credit, its price goes down to $47,000, the lowest price it has ever been sold at. This only means it’s an excellent time to purchase the Tesla Model Y. Further, the Tesla Model Y Performance now has a starting price of $58,600.
Even if you didn’t have $40,000 to spare, the Model Y Long Range is still one of the best deals you’ll find in a long time. But if you have that amount to spend on a car, you can always buy the Model 3. It’s important to note that the price cap accounts for any add-ons installed to the vehicle before delivery but does not include any in-app purchases, software upgrades, fees, or taxes. The price does increase with options like larger tires or an upgraded paint job. While configuring and placing an order for a Tesla, you will receive a real-time notification indicating whether your order qualifies for the full tax credit.
Meanwhile, the pricing for Tesla’s high-performance Model S Plaid has been lowered from $135,990 to $114,990, a decrease of $21,000. The base version has also seen a price reduction of $10,000, with a starting price of $94,990. Similarly, the Model X prices have also been reduced with the Plaid version going down by $19,000 and the base model by $11,000. However, both versions of the Model X will still cost you over $100,000.
| Model S | Model X | |||
| Standard | Plaid | Standard | Plaid | |
| Old Price | $104,990 | $135,990 | $120,990 | $138,990 |
| New Price | $94,990 | $114,990 | $109,990 | $119,990 |
| Savings | $10,000 | $21,000 | $11,000 | $19,000 |
Tesla reducing the prices of its electric vehicles by up to 20% worldwide puts tons of pressure on its competitors. Analysts view this move as a competitive strategy aimed at smaller competitors that are struggling financially and even established automobile manufacturers who are increasing their electric vehicle production. This decision also represents a change in the company’s previous approach of having more orders than supply over the past two years. Tesla decided on the price reductions after CEO Elon Musk expressed concerns that an economic downturn and rising interest rates may require the dropping of prices to maintain growth, even if it comes at the cost of profit. Musk has admitted that the prices of Tesla’s vehicles had become unaffordable and could harm demand.
However, those who recently bought Teslas before the price cuts weren’t too happy with the announcement. AutoPacific analyst Robby DeGraff recently said that Tesla also needs to deal with this issue. Last December, attractive discounts lured customers into buying Tesla vehicles. They took to social media to air out their frustration and asked for added discounts on several services.
“There does, however, appear to be some drama unfolding though among shoppers who just purchased these exact Tesla vehicles, at higher costs, prior to these dramatic price drops being announced, things could get ugly, and Musk may need to figure out a way a way to put out those fires,” said DeGraff.
Despite the adverse reaction, Tesla will continue making sales. The price cuts will make Tesla cars more affordable and accessible to a broader range of consumers, increasing the potential customer base. Additionally, the price cuts create a sense of urgency among consumers, leading them to make a purchase before the prices go back up. The perception of value also can attract more customers if they feel they are getting a better deal than before.
Dan Ives, a tech analyst at Wedbush Securities who remains optimistic about Tesla’s future, said the drop in prices will eventually prove to be a good decision in the long run.
“While the initial reaction to these cuts will naturally be negative on [Wall] Street at first, we believe this was the right strategic poker move by Musk and company at the right time,” said Ives.
Again, the Inflation Reduction Act of 2022 has introduced a significant tax credit for certain electric vehicles, but with changes expected in March 2023. Buyers should place orders before March to capitalize on the current credit amount. This is the perfect time to go electric if you haven’t already, as Tesla vehicles are among the safest in the market. Tesla cars are sporty, fast, fun, and technologically advanced, plus you get the best supercharging network.