Tesla Model Y May Be Left Out of New Federal EV Credits

As electric vehicles become more prolific, governments are encouraging consumers to move beyond internal combustion. The US has offered a tax credit for years, but many manufacturers like Tesla have sold too many EVs to qualify. A new round of credits is now available, giving Tesla buyers a chance to save on a new vehicle. However, it appears the rules as currently written do not cover Tesla’s newest car.

The Inflation Reduction Act of 2022 included numerous programs aimed at lowering inflation and addressing climate change, including the new federal EV tax credit. Consumers who pick up a new EV can get a tax credit of up to $7,500, but there are limits based on vehicle types and prices. The IRS has created two categories of electric and hybrid vehicles covered by the tax break: vans, trucks, and SUVs that cost less than $80,000, and all other vehicles with a ceiling of $55,000.

At first glance, it seems like that should cover Tesla’s lineup, but the Model Y is in a weird place. This crossover is Tesla’s most recent release, with a starting price of about $66,000. Based on the current wording of the rules, only the 7-seat version of this car will qualify for the tax credit. Vehicles have to meet certain criteria to be considered an SUV under the program, including a weight of over 6,000 pounds. The 7-seat Model Y meets enough criteria to be included as an SUV, but the starting price of the lighter 5-seat version is over the $55,000 MSRP cutoff. Thus, none of the 5-seat Model Ys are included.

If the goal of this program is to encourage people to buy more fuel-efficient cars, it’s missing the mark in this case. The credits also apply to hybrid vehicles, many of which will get tax credits not available to the Model Y, despite having poorer fuel economy. Tesla CEO Elon Musk is speaking candidly about his frustration (what else is new?), asking his Twitter followers to submit public comments on the proposed tax credit rules.

The rules won’t be finalized until March 2023, so there’s still a chance that the IRS could revise its categorization in such a way that the Model Y would be eligible for the tax credit. Since buyers will file for the credit at tax time next year, you could still purchase one of the uncovered Model Y variants right now and cross your fingers that the IRS relents. If you can hold off, though, you probably should.

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