News recently broke that the Tesla Model 3 LR AWD regained the $7,500 tax incentive in the US thanks to what appeared to be a battery power change, officially bringing it in line with the Model Y. A recent post on https://twitter.com/SawyerMerritt/status/1805364595831587079 on Sawyer Merritt’s X (via Autoevolution) might explain why the Model 3 has suddenly joined the Model Y in compliance with IRA EV tax incentives.
Simply put, Tesla is making two versions of each Model 3 and Model Y vehicle, and buyers’ choice depends on whether they can claim the EV tax incentive based on their income. To keep the overall prices of the Model 3 and Model Y low, Tesla split battery production between two suppliers, LG and Panasonic.
According to Autoevolution, LG cells are cheaper to produce, although they do not qualify for the minimum local materials and assembly requirements specified by the Inflation Reduction Act. The Panasonic cells used in the Model Y and Model 3, however, meet the minimum production requirements. As a result, any Tesla Model 3 or Model Y that needs to qualify for the IRA tax incentive will have more expensive Panasonic cells, while EVs that don’t will have a battery pack made up of LG cells.
In particular, the performance of the Model 3 and Model Y batteries – in terms of power output, charging and overall autonomy – are no different. The only difference is that Panasonic cells will have more raw materials sourced from the United States and will undergo more manufacturing in the United States.
It’s worth noting that potential buyers looking at Model 3 and Model Y inventory should be careful that the car they’re buying is explicitly labeled as eligible for the IRA tax incentive, or they might get a nasty surprise when they look to apply for the $7,500 incentive.
Functionally, Tesla’s tricks keep the prices of the Model 3 and Model Y – and likely the company’s profits – within reason, while still accomplishing the IRA’s goal of production of electric vehicles, at least for the most part. However, the funds earmarked for the IRA tax incentive program are intended to grow local electric vehicle production in the United States and reduce the country’s reliance on imports to achieve electrification.
However, tricks like this may soon no longer be necessary, as many EV battery suppliers are seeing the situation and are working on cell manufacturing partnerships in the US, including LG.
Currently, the cheapest Tesla Model Y costs $44,990 without the tax incentive ($37,490 after the incentive), while the cheapest Model 3 that qualifies for the $7,500 incentive – the Long Range AWD – costs $47,490 before incentives (and $39,990 after full IRA incentive).
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