Tesla appears to have adjusted its supply chain to enable all versions of the Model 3 in the US to become eligible for the full $US7,500 IRA tax credit, making the Standard Range Model 3 cheaper than an entry level Toyota Camry in California.
Until a few days ago only the Model 3 Performance qualified for the full credit with the entry level Standard Range and Long Range only eligible for the partial $3,750 credit.
With the entry level Standard Range Model 3 starting at $US40,240, the full federal tax credit now brings its price down to $32,740. Adding in California’s $7,500 Clean Car Rebate takes the purchase price down further to just $25,240. According to Reuters this is cheaper than an entry level Toyota Camry which starts at $26,320.
From July 1, 2023 all Colorado residents who purchase an EV with a MSRP up to $80,000 will also qualify for Colorado’s new $5,000 EV tax credit taking the price of a Standard Range Model 3 in that state to just $27,740.
With running costs just a faction of a ICE vehicles, the new Model 3 pricing really makes it a no-brainer. It is already accepted that lifetime costs of a Model 3 are lower than a Camry. If the purchase price is also lower, then it really is no contest.
New IRA tax credit approval suggest battery supply chain changes for Tesla
The IRA EV tax credit scheme consists of two parts. If 50% of the value of battery components were produced or assembled in North America the EV qualifies for $3,750. If 40% of the value of critical minerals are also sourced in the US or FTA country, the EV qualifies for the full $7,500.
Until now, the batteries in the Standard Range and Long Range versions of the Model 3 didn’t qualify for the second part.
Morgan Stanley says Tesla likely “tweaked” its supply chain to meet both requirements.
“Until now, Tesla’s Fremont factory was getting full LFP packs from Giga Shanghai for Model 3. Tesla may have switched to manufacturing those battery packs in the US while still using Chinese cells.” said Morgan Stanley in a market update paper this week.
Morgan Stanley thinks this is why Model 3 vehicles sold in Canada are now being sourced from Tesla’s Shanghai factor.
“Tesla vehicles sold in Canada are now being sourced from China, freeingup US battery production for local deliveries in the US and allowing Tesla to maximize its IRA benefits.”
The analysts point to an alternate method in the regulation for calculating critical mineral content.
According to the IRA regulation Tesla “could average the qualifying critical mineral content calculation over a limited period of time (for example, a year, quarter, or month) with respect to vehicles from the same model line, plant, class, or some combination of thereof.”
“Essentially, if Tesla produces qualifying Model 3 batteries or even overall production at Fremont in a sufficient quantity, it can offset the Model 3 RWD, which normally would not qualify for the full tax credit.” says Morgan Stanley.
Speculation Tesla may have dropped CATL for US made Model 3
According to Reuters Tesla may have dropped its current supplier CATL in favour of Panasonic of LG Energy Solutions for the US-made Model 3 Standard Range.
The subsidy value would far outpace the saving of using cheaper iron-based cells used by CATL, Benchmark Mineral Intelligence (BMI) analyst Caspar Rawles told Reuters.
“It is highly likely it is Panasonic but there may be some concerns around cell availability if they need to supply enough for all U.S. Model 3s,” he said.
When Reuters asked CATL about its supply arrangements to Tesla, the Chinese battery maker said, “The strategic partnership between the company and customers has not changed and will continue to deepen and improve.”
New pricing adds to Toyota’s woes
The new pricing making the Standard Range Model 3 at a cheaper price point than Toyota’s mass market affordable Camry adds to Toyota’s problems in the US market.
A report by S&P Global Mobility last year showed that of all the major car makers, Toyota customers were the most likely to trade in their vehicles for a new Tesla.
Of the 191,000 trade-ins for new Teslas between October 2021 and September 2022, 15% were Toyotas. With the new EV tax incentives kicking in it will be interesting to see if this figure grows over the next 12 months.
Daniel Bleakley is a clean technology researcher and advocate with a background in engineering and business. He has a strong interest in electric vehicles, renewable energy, manufacturing and public policy.