Tesla stock soars as questions swirl around Model 3 tax credit eligibility

You’re here (TSLA) says all of its Model 3 vehicle trims are now eligible for the full tax credit under the Inflation Reduction Act (IRA). The Internal Revenue Service verified this claim on Tuesday. However, it is still unclear how the global electric vehicle giant accomplished this feat. TSLA stock jumped on Tuesday.


Tesla’s website recently said the base Model 3 vehicle was eligible for the full $7,500 IRA tax credit. The model previously only qualified at the $3,750 level. Tesla did not disclose how it aligned the Model 3 with IRA requirements for the full tax credit.

Meanwhile, the IRS officially changed its site Tuesday morning. He announced that all Model 3 and Model Y vehicles are eligible for the $7,500 tax credit.

The Biden administration said March 31 that vehicles eligible for the full $7,500 tax credit must have batteries with specific amounts of North American-made components and critical minerals sourced from the United States or certain country.

Vehicles that meet only one of the essential mineral or battery component requirements are eligible for a tax credit of $3,750. At the time, the base-drive Model 3, with its battery from China, was not eligible for the full tax credit.

Tesla stock shrugged off early losses and climbed 1.3% to 220.39 on Tuesday. It rose right after the IRS confirmed Model 3 eligibility. TSLA has won for the past seven sessions. It is up over 100% from early January lows at 101.81.

The eligibility switch

Late Monday, Morgan Stanley Adam Jonas wrote that the qualification change “implies that Tesla likely changed its supply chain to meet both requirements.”

Tesla used Chinese CATL’s lithium iron phosphate (LFP) batteries for the base Model 3. CATL said on Monday that rumors that Tesla had ended their relationship were false and there were no changes in the strategic partnership.

Jonas told investors that Tesla may have switched to manufacturing Model 3 batteries in the United States while using battery cells made in China. Analysts have also floated the idea that with Shanghai Tesla exporting to Canada, it could free up battery production in the United States for local deliveries.

Or, Jonas said, it could just be “regulatory semantics.” According to guidelines issued by the US Treasury, manufacturers of electric vehicles can average the content of eligible critical minerals used over a limited period of time.

Jonas said that language means Tesla could produce enough qualifying Model 3 batteries at its Fremont plant to offset the China-made battery in the Model 3 rear-drive trim.

Tesla Stock

TSLA jumped 1.7% to 217.61 on Monday. The stock broke above the 200-day moving average a week ago.

Tesla stock jumped 10.8% to 213.97 last week. Shares jumped 3.1% on Friday, topping an official buy point of 207.79 from what is either a cup or double-bottom base.

Tesla ranks fourth in the IBD automaker industry group. It has a composite rating of 88 out of 99. Tesla stock has a relative strength rating of 69. The EPS rating for Tesla stock is 93 out of 99.

Please follow Kit Norton on Twitter @KitNorton for more coverage.


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