Tesla cuts prices in the US ahead of changes to the EV tax credit

The electric car manufacturer again lowered the prices for its electric cars in the US. This change hints at what could happen to Tesla (ticker: TSLA ) vehicles eligible for sales tax credits under stricter rules to be applied by the IRS.

Tesla has lowered the sticker price, according to its website, for its Model 3 by $1,000 and its Model Y by $2,000. For its more expensive Model S and Model X, prices dropped $5,000.

A Model 3 starts at around $42,000 now. A Model Y at $50,000. The S and X models start at around $85,000 and $95,000 respectively.

The United States is introducing tougher requirements for battery materials and battery components in electric cars to allow buyers of the cars to qualify for a $7,500 tax credit. The new rules, announced on 31[ads1] March, will come into effect on 18 April.

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Figuring out how to apply the rules has been a bit more difficult than the government expected. To start the year, the IRS ignored these requirements, and all EVs assembled in North America that were below established price caps qualified for the full credit.

Ford Motor ( F ) announced Wednesday that the Mustang Mach E will have its credit reduced to $3,750 from $7,500 because it does not meet domestic battery purchase requirements. The market was not happy with that realization. Ford shares fell 3% on Wednesday and Thursday combined. The S&P 500 was flat over the same period.

Other EV stocks were not spared after Ford’s announcement. Rivian Automotive ( RIVN ) and Tesla shares fell around 6% and 4%, respectively.

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Tesla has cut the prices of its vehicles several times this year. While some saw it as a sign of concern about weak demand, the moves have helped the company boost sales and market share.

The most American. significant price cuts by Tesla in early January appeared to be designed to get most of the Model 3 and Y models under the price caps for the EV tax credit. Tesla did not respond to a request for comment on all of the recent price actions.

The recent Model X and Model S price cuts may be more about dampening demand than any tax credits. Eligible trucks, SUVs and vans are capped at $80,000. Other vehicles, including sedans, are capped at $55,000. The more expensive X and S vehicles do not qualify.

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Globally, Tesla delivered 10,695 X and S vehicles in the first quarter of 2023. (Tesla does not break out delivery numbers by region.) That was lower than the roughly 17,500 Wall Street estimates and the 17,147 X and S vehicles that were delivered in the fourth quarter of 2022.

It’s been a wild start to the year for EV prices in America. There is more volatility ahead, with the new IRS rules coming out in just a couple of weeks.

For now, aggressive car shoppers can still get $7,500 off most Tesla models and a Mustang Mach E if they shop now.

Through Thursday trading, Tesla stock is up about 50% so far this year, rebounding after falling 65% in 2022.

Write to Brian Swint at

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