Elon Musk‘s Tesla Inc. TSLA has reportedly told employees that it expects to lose $7,500 federal tax credit on its cheapest electric car — the Model 3 Standard Range.
What Happened: Tesla told its employees that it expects to lose the full $7,500 federal tax credit on Model 3 Standard Range because the batteries come from China, reported Electrek.
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According to the report, in order to be eligible for up to half the tax credit under the recently introduced tax credit scheme, the battery production must take place in North America and the materials must be sourced from countries that have a free trade agreement with the U.S.
However, the guidance on how these requirements would work for were not released in time for the new tax credit coming into effect in January. As a result, they were waived until the second quarter, the report added.
Why It’s Important: For the past three months, eligible buyers received a tax credit on all Model 3 and Model Y vehicles, the report said.
According to the report, Tesla has informed its employees that it anticipates the IRS to release the guidance very soon. The automaker, therefore, expects to lose the entire credit on its most affordable vehicle, the Model 3 Standard Range, given that its batteries come from China.
Model 3 Standard Range, though manufactured in the U.S., employs battery packs made using LFP battery cells built in China.
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