By Tesla has issued a warning on its website, alerting potential buyers about potential reductions to federal tax credits for electric vehicle (EV) purchases that may take effect next year. The notice explains that individuals who meet the federal requirements and take delivery of a qualified new Tesla can currently receive a tax credit of up to $7,500. However, it suggests that reductions to the existing federal tax credit are likely to occur after December 31.
At present, all versions of Tesla’s Model 3 and Model Y vehicles are eligible for the full $7,500 tax credit. When questioned about which vehicles might be affected and the reasons behind it, Tesla did not respond.
To be eligible for these tax credits, an EV must be assembled in North America. Furthermore, specific criteria regarding the percentage of battery components and battery materials sourced from North America or U.S.-friendly countries must be met. These requirements gradually increase over time to encourage greater EV battery and materials manufacturing within the U.S.
Tesla’s standard-range vehicles predominantly utilize lithium-iron-phosphate (LFP) batteries, which are less expensive compared to other types of lithium-ion battery chemistries. These batteries are primarily manufactured by China’s Contemporary Amperex Technology (CATL), also known as CATL.
Investors have expressed some concern following this announcement. As a result, Tesla stock experienced a slight decline of 0.7% during midday trading, while the S&P 500 and Nasdaq Composite saw gains of 0.5% and 0.9%, respectively.
In comparison, Ford Motor stock experienced a 0.6% decrease, whereas General Motors shares saw a 0.9% increase during midday trading.
The Mysterious Divergence of Ford and GM Shares
The recent divergence in the performances of Ford and GM shares has left experts and investors puzzled. While Ford acknowledges upcoming changes in their vehicle lineup, predicting which specific models will be affected proves to be a challenge. On the other hand, GM has remained silent on the matter, leaving investors in the dark.
The confusion surrounding tax credits for electric vehicles (EVs) further complicates the situation. In January, all EVs assembled in North America qualified for the full credit, as the IRS was still finalizing details regarding battery and material sourcing. However, come April, many EVs lost some or all of the credit. The standard range Tesla Model 3, for instance, saw its credit reduced from $7,500 to $3,750. Fortunately for Tesla, it was eventually reinstated to the original $7,500 credit, presumably after providing more information on battery sourcing.
These tax credits play a significant role for both automakers, as they impact pricing and ultimately influence profits per vehicle. The uncertainty and fluctuations in credit availability create an undesirable environment for manufacturers. However, investors must accept that this volatility may persist for the foreseeable future.
Certainly, car buyers are also affected by the amount of credit available. They now face the task of continuously consulting the fueleconomy.gov website for an updated list of qualifying vehicles.
It remains unclear how this divergence in share performances will play out for Ford and GM in the long term. Nonetheless, one thing is certain – both automakers will need to navigate through these uncertain times with caution.
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