Tesla Model 3 tax credits likely reduced after Dec. 31

According to information posted on Tesla’s (NASDAQ:) website on Tuesday evening, the federal tax credits of $7,500 for Tesla’s Model 3 electric vehicles are expected to decrease after December 31.

The move comes as the U.S. government prepares to implement stricter regulations on batteries next year, with the aim of promoting domestic production of this essential component for electric vehicles and decreasing reliance on China.

“All new Model 3 vehicles currently qualify for a federal tax credit for eligible buyers. Reductions likely after Dec 31,” Tesla said on its website.

Starting in June, all Tesla Model 3 vehicles became eligible for the $7,500 consumer tax credits, previously granted to only two out of three versions. This significant subsidy, also applicable to Model Ys, played a crucial role in increasing Tesla’s stock value and contributed to the automaker achieving record-breaking quarterly deliveries from April to June.

Tesla wrote in an email to owners today, “The $7,500 federal tax credit will likely decrease after December 31, 2023 for some models. New Model 3 and Model Y vehicles delivered by December 31, 2023 still qualify for the full credit.”

Right now, to qualify for the EV credit, a vehicle needs to have at least 50% of the battery components produced or assembled in North America, which gets you a credit of $3,750. Plus, 40% of the critical minerals must be sourced from the US or a country with a free trade agreement. These requirements increase by 10 percentage points each year.

Shares of TSLA closed up 0.82% for the day Wednesday.