Tesla (TSLA) claims 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 that claim Tuesday. However, it remains unclear how the global EV giant accomplished the feat. TSLA stock jumped Tuesday.
XTesla's website recently stated that the base Model 3 vehicle was eligible for the full $7,500 tax credit under the IRA. The model previously only qualified at the $3,750 level. Tesla has not disclosed how it brought the Model 3 into alignment with IRA requirements for the full tax credit.
Meanwhile, the IRS made the official change to its site Tuesday morning. It announced all Model 3 and Model Y vehicles qualify for the $7,500 tax credit.
The Biden administration said on March 31 that vehicles eligible for the full $7,500 tax credit must have batteries with specific quantities of components manufactured in North America and critical minerals sourced in the U.S. or from certain countries.
Vehicles that meet only one of the critical minerals or battery components requirements are eligible for a $3,750 tax credit. At the time, the base rear-wheel drive Model 3, with its battery from China, did not qualify for the full tax credit.
Tesla stock shrugged off early losses and climbed 1.7% to 221.31 Tuesday. It turned higher just after the IRS confirmed the Model 3 eligibility. TSLA has gained in the past seven sessions. It is up more than 100% above early January lows of 101.81.
The Eligibility Switch
Late Monday, Morgan Stanley Adam Jonas wrote the qualification change "implies that Tesla likely tweaked its supply chain to meet both requirements."
Tesla has used the lithium iron phosphate (LFP) batteries from China's CATL for the base Model 3. CATL commented Monday that rumors Tesla has ended their relationship are untrue and there is no change in the strategic partnership.
Jonas told investors Tesla may have switched to manufacturing Model 3 battery packs in the U.S. while still using China-made battery cells. The analysts also floated the idea that, with Shanghai Tesla exporting to Canada, it could be freeing up U.S. battery production for local deliveries.
Or, Jonas said, it simply could be "regulatory semantics." Under guidance issued by the U.S. Treasury, EV manufacturers can average the qualifying critical mineral content used over a limited period of time.
Jonas said this language means Tesla could produce enough qualifying Model 3 batteries at its Fremont plant to offset the Model 3 rear-wheel drive trim's China-made battery.
Major Indexes Mask Broad Strength; Five Stocks In Buy Zones
Tesla Stock
TSLA jumped 1.7% to 217.61 Monday. The stock cleared the 200-day moving average a week ago.
Tesla stock surged 10.8% to 213.97 last week. On Friday, shares jumped 3.1%, running past an official 207.79 buy point from what's either a cup or a double-bottom base.
Tesla ranks fourth in IBD's automaker industry group. It has an 88 Composite Rating out of 99. Tesla stock has a 69 Relative Strength Rating. 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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