Tesla’s Model Y could fall foul of new EV tax credit eligibility rules


Certain variants of Tesla’s Model Y may not qualify for the $7,500 federal EV tax credit based on the IRS’s latest guidelines, a situation that Elon Musk has called “messed up.” It looks as though the five-seat Long Range version of the hatchback is too expensive as a car and not considered an SUV, so it falls outside the current guidelines. That could change, though, as the rules won’t be finalized until March 2023.

The IRS has divided vehicles into two categories: vans, SUVs and pickup trucks under $80,000, and other vehicles under $55,000. For the first category, the vehicle must have 4-wheel drive or be rated at more than 6,000 pounds of gross weight. It also has to meet four of five other characteristics, most notably front and rear axle clearances of 18 centimeters or higher and a running clearance of at least 20 centimeters (no Model Y meets these specs).

Tesla Model Y tax credits

Internal Revenue Service

According to the IRS, only the 7-seat variants of the Model Y qualify as SUVs in the category up to $80,000, while the 5-seat vehicles (Long Range, AWD and Performance) are in the $55,000 section. The 7-seaters comfortably fall under the $85,000 limit, but all the 5-seaters exceed the $55,000 price, so they don’t qualify.

 Tesla doesn’t have a specific AWD variant of the Model Y in the US (both the Long Range and Performance models are AWD), so it’s not clear which model the IRS is referring to. The 5- and 7-seat versions cost the same, starting at $65,990 for the Long Range version before destination and order charges.  

Critics are pointing out that far more polluting hybrid vehicles qualify for the tax credits, including two Jeeps, the Audi Q5 e Quattro, BMW X5 xDrive45e and Ford’s Escape PHEV. However, if someone buys a Jeep Wrangler with 56 MPGe (23 MPG after the battery is depleted) instead of a Tesla Model Y with 122 MPGe, then the government clearly isn’t doing the most it can to reduce carbon emissions. The IRS has invited consumers to comment on the matter, and Musk encouraged people to do so in a tweet. 

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