U.S. Tax Credit Rule Changes Lead To Tesla Raising Model Y Price

According to Tesla, the Model Y's price has increased in the U.S. because of a rise in demand and changes to government rules that grant more tax credits for its smaller version.

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A website for the Austin, Texas-based company says the Long Range version of the Model Y has been increased by about 2% to $54,990, and the Performance version by about 2.7% to $57,990. Shipping and order fees are not included in the prices.

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The company's top-selling vehicle, the Model Y, was cut by nearly 20% three weeks ago. Inflation Reduction Act's electric-vehicle tax credit of $7,500 was boosted by the price cuts in order to boost sagging demand. At least until March, taxpayers will be able to claim the full amount of tax credits.

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EVs made by Tesla, Ford, and General Motors are now eligible for the full $7,500 tax credit after the Treasury Department revised its classification definitions on Friday.

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Biden administration changed vehicle definitions after automakers lobbying for the credit to be extended to higher-priced vehicles after the Biden administration refused to change its vehicle definitions. In a meeting last week, Tesla CEO Elon Musk discussed the electric vehicle industry and domestic electrification goals with top aides to President Joe Biden.

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A new law approved last summer allows new electric cars, sedans and wagons with a sticker price up to $55,000 to qualify for the tax incentives. The law also allows pickup trucks, SUVs and vans with a sticker price up to $80,000 to qualify as well. There were complaints from Tesla and other automakers about the rule, which disqualified some more expensive SUVs, such as GM's Cadillac Lyriq and some models of the Model Y.

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It appears that the price cuts in January were successful. CEO Elon Musk said last week that Tesla has received the most orders so far in January in company history. A little bit of price increase was also made in response to the Model Y protests, according to the CEO.

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The Ford Mustang Mach-E was reduced by Ford after Tesla's price cuts, partly to qualify for the tax credit and also to attract buyers. GM, however, said that it had no plans to lower the price of electric vehicles.

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Congress approved the Inflation Reduction Act with only Democratic votes in August, which included the EV tax credit. In an effort to reduce planet-warming greenhouse gas emissions, the law aims to spur EV sales. Buyers might not be able to receive a full $7,500 credit due to a complex web of requirements, including where vehicles and batteries are manufactured.

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Consumers should be able to better understand what vehicles qualify for the credit, Treasury said Friday. Treasury said a consumer-facing fuel economy labeling standard will replace the Environmental Protection Agency's more complex formula used to classify vehicles.