Why Tesla’s Model Y might not be eligible for the new EV tax credit

If you were waiting until after New Year to pick up a Tesla Model Y in hopes it’d qualify you for the new federal tax credit, you might be in for a disappointment. The IRS released a 2023 list of vehicles that qualify for the new $7,500 incentive, and while Tesla’s popular hatchback is on it, the most common five-seater versions won’t be eligible.

Without SUV status, the Model Y’s qualifying price ceiling would be $55,000, the same category that includes a compact hatchback like the Chevy Bolt. And since the Model Y Long Range starts at $65,990, it’s not currently eligible for the $7,500 credit.

Tesla CEO Elon Musk tweeted that the disqualification is “messed up” in a reply to a Tesla fan comparing a qualifying plug-in hybrid Jeep to the Model Y. Another tweet that Musk replied to points out that Model Y is specifically “238 pounds too light” to be considered an SUV. “Penalized for making our SUV too mass-efficient? That is bizarre,” Musk wrote.

The seven-seater version of the Model Y, however, is still eligible despite its weight being under 6,000 pounds. It has fold-flat third-row seating, which is another federal SUV qualifier that the five-seater does not have. Confusingly, no Model Y has a ground clearance that’s 20 centimeters or higher, among other federal specifications that would define the vehicle as an SUV. Perhaps a lift from the factory could fix that, or it would need active air suspension like the Model X.

As an SUV, the seven-seater Model Y jumps to the applicable MSRP limit of $85,000, which makes those versions eligible for the tax incentive. The seven-seat option adds $3,000 to the Model Y Long Range’s price but notably cannot currently be configured with Model Y Performance trims — making those ineligible as well.

There are other curiosities that fall on the IRS list of clean vehicles, like how the Ford Mustang Mach-E isn’t considered to be an SUV while the Ford Escape Plug-in hybrid is. The Escape has a shorter wheelbase and is lighter than the Mach-E, too.

It would seem that Tesla and other manufacturers will have to make some changes to fall in line with the new clean vehicle qualifications. Tesla, specifically, might need to make some design changes to its Model Y. It might be hard to get it over 6,000 pounds, but it could just reduce the price of the car.