Tesla bumps up Model Y price after EV tax credit adjustment

On Friday, the Treasury Department updated how it classifies vehicles that qualify for the $7,500 EV tax credit as part of the Inflation Reduction Act (IRA). The change should allow more vehicles — including the Model Y — to qualify for the credit because it no longer puts certain crossover SUVs in the same category as sedans.

Previously, certain Model Y models, along with the Cadillac Lyriq, were ineligible for the EV tax credit because their sticker prices exceeded the $55,000 maximum suggested retail price for sedans.

But now that the government is using the Environmental Protection Agency’s (EPA) fuel economy labeling standard instead of the EPA’s Corporate Average Fuel Economy (CAFE) standard to classify vehicles, the Model Y and Cadillac Lyriq now fall under the SUV category. This gives Tesla more wiggle room when it comes to pricing, as vehicles in this category can be priced up to $80,000 to qualify for the tax credit.

It is not yet clear how the Treasury Department’s list of qualified vehicles will change in March. The agency is then expected to publish its guidance on how to apply the IRA’s strict rules on the sourcing and production of minerals and battery components used in electric vehicles.