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Tesla is signaling that along with two trims of Model 3 losing all their federal tax credit next year, Model Y is also “likely” to lose part of the tax credits.

Just earlier today, Tesla confirmed that Model 3 RWD and Model 3 Long Range will lose the full $7,500 federal tax credit for electric vehicles on January 1st after previously signaling that they would only lose half.

Now, Tesla is also warning that Model Y is “likely” going to see “reductions” in its federal tax credits.

The automaker wrote in the Model Y’s online configurator:

Customers who take delivery of a qualified new Tesla and meet all federal requirements are eligible for a tax credit up to $7,500. Reductions likely after Dec 31. Only for eligible cash or loan purchases.

The reduction comes as the government is increasing the requirements for electric vehicles to have fewer parts, especially batteries, from China in order to secure access to the credit.

The Model 3 trims are expected to lose the tax credit because they are using LFP cells from China.

Unlike Model 3, it has never been 100% confirmed if the Model Y RWD uses LFP cells nor do we even know which version of the Model Y is “likely” to see its tax credit being reduced.

While this is going to affect Tesla negatively temporarily, the automaker is working to produce more batteries locally in the US in order to regain access to the full tax credit.

However, it’s unclear when it will be able to ramp battery production enough to support Model 3 and Model Y being produced in the US. For now, Tesla’s own battery production is going to the new Cybertruck.

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