Some potentially bad news for any hopeful Tesla owners next year: the two most popular Model 3 variants, the RWD and Long Range, will see their federal tax credits halved come Jan. 1, 2024 thanks to new rules around battery materials in electric cars.  

Instead of being eligible for up to $7,500 as it's still the case now, the two Model 3 trims will qualify for up to $3,750 starting next year under the updated Inflation Reduction Act guidance announced last week.

Tesla has confirmed this on its customer website, informing prospective customers that they can still get the full tax credit if they take delivery of a Model 3 RWD or Long Range by Dec. 31.

"Customers who take delivery of a qualified new Tesla and meet all federal requirements are eligible for a tax credit up to $7,500. Tax credit will reduce to $3,750 for Model 3 Rear-Wheel Drive and Model 3 Long Range on Jan 1, 2024. Take delivery by Dec 31 for full tax credit. Only for eligible cash or loan purchases," reads Tesla's announcement.

The electric automaker had posted a similar message on its Model 3 page since July, informing customers that reductions to the federal tax credit were "likely" starting from 2024. However, Tesla did not say which Model 3 variants might see their federal tax credit reduced at the time.

Now the new tax rules are clear, and the Model 3 RWD and LR are likely penalized because their battery packs contain components from a so-called "foreign entity of concern"—in this case, China. Tesla has not revealed details on why its Model 3 variants are losing full tax credit eligibility.

If you're in the market for a Tesla Model 3 and want to take advantage of the full tax credit this month, you should know the electric sedan also comes with six months of free Supercharging if you take delivery by Dec. 31.

This promotion is likely part of Tesla's efforts to boost sales for the 2023 calendar year. In its third-quarter earnings call on October 18, the company reiterated its 1.8 million vehicle delivery goal. In the first three quarters of this year, Tesla delivered 1,324,074 vehicles worldwide, the vast majority of which were Model Y and Model 3 EVs (1,278,169 units).

As for what will happen with U.S. EV prices under the revised tax credit rules next year, that remains unclear. More models could see their tax credits evaporate until EV and battery production scales up in the U.S. without Chinese materials, which could hurt EV adoption in the meantime. But given his penchant for rapid-fire price changes this year alone, it's entirely possible Tesla CEO Elon Musk will make his own tweaks to keep his company's sales up. 

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