That $7,500 Tax Credit On A Tesla Model Y Could Go Away

Get ready for a reset of the $7,500 tax credit on electric vehicles, which could have an outsized impact on America’s best-selling EV, the Model Y.

TLDR: You may want to consider moving up plans to buy an EV if you’re going to rely on the $7,500 federal EV tax credit. That’s based on policy changes that could occur under President-elect Donald Trump. As of now, the credit serves essentially as an instant discount at point of purchase. “These policies will not likely change overnight, but consumers who were planning on taking advantage of EV tax credits and reduced costs might consider moving up their purchases a bit sooner,” said Jessica Caldwell, Edmunds’ head of insights, in a statement on Wednesday.

The Tesla Model Y is the best selling EV in the U.S., making it one of the most impacted vehicles if the $7,500 federal tax credit is changed or eliminated. But any EV currently eligible for the credit would be affected, including the following (see full list from the Department of Energy):

• Tesla Model Y
• Tesla Model 3
• Cadillac Lyriq
• Acura ZDX
• Honda Prologue
• Chevrolet Blazer EV
• Chevrolet Equinox EV
• Ford F-150 Lightning
• Volkswagen ID.4
• Rivian R1s/R1T (partial)
• And other EVs

The Tax Credit Now

The Internal Revenue Service sets forth the terms of the EV tax credit per the Inflation Reduction Act or IRA. The key language is that a vehicle has to meet U.S.-sourced “critical mineral and battery component requirements.” (The EVs listed above meet those requirements, except for Rivian, which has partial eligibility.) In addition, the buyer’s modified adjusted gross income may not exceed $300,000 for married couples filing jointly, $225,000 for heads of households and $150,000 for all others, according to the original wording of the credit.

Consumers can shave even more off the price of an EV depending on the state in which they reside. State and local government incentives can be substantial, reducing the price of an EV thousands of dollars above and beyond the $7,500 tax credit. That includes states like California and Colorado.

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President-Elect Trump Not Keen On Credit

President-elect Donald Trump has indicated he is not in favor of the tax credit. "Tax credits and tax incentives are not generally a very good thing," Trump told Reuters when asked about the EV credit in August. More broadly, Trump has spoken against EVs in campaign speeches, claiming that an “EV mandate” has the effect of coercing consumers to buy EVs—though his stance softened somewhat in the weeks prior to the election. And vice president-elect Senator J.D. Vance has proposed replacing the EV tax credit with a similar tax incentive for gas-powered vehicles.

Timing And Scope Of Changes To $7,500 EV Tax Credit Is A Roll Of The Dice—So Don’t Wait

The EV tax credit is likely not among the most pressing priorities for the new administration after January 20. So, changes may not happen right away. That said, if you’re considering a Tesla or another EV, there’s no guarantee of the timing and whether the credit will, in whole or in part, survive the new administration. So it might be a smart play to consider a purchase or lease (both are eligible for the credit) before January 20.

Is Tesla Ready?

Based on public statements to date, CEO Elon Musk appears ready for any outcome. Musk’s comments on the tax credit have ranged from “We don't need the $7,500 [EV] tax credit” in 2021, to a statement in 2022 that Tesla expects to fully meet the requirements of the Inflation Reduction Act. Whatever happens, the Tesla CEO seems unfazed by the prospect of an end to the tax credit.