Tesla raises Model Y prices after Treasury says it counts as an SUV

Barely three weeks after slashing its prices to qualify for federal tax incentives for clean vehicles, Tesla has increased the prices of some of its best-selling electric vehicles. At the beginning of January, a five-seat Tesla Model Y long-range crossover cost $65,990; on January 12 Tesla dropped this to $52,990. Now, that has gone up by $2,000 to $54,990. And the Model Y Performance saw its price drop from $69,990 to $56,990; today that same EV will cost $57,990.

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The original price drops in January allowed the Model Y to qualify for new clean vehicle tax credits introduced in the Inflation Reduction Act of 2022. Among other changes, the new tax credit regulations imposed a price cap on new EVs in order to qualify, with a larger $80,000 price cap for SUVs, trucks, and vans compared to sedans, which are capped at $55,000 for eligibility.

Originally, the Treasury said it would use the US Environmental Protection Agency's Corporate Average Fuel Efficiency classification to determine what was a car and what was a light truck--a category that includes SUVs and vans but excluded crossovers like the Ford Mustang Mach-E, the Cadillac Lyriq, the Volkswagen ID.4, and yes, the Tesla Model Y. (The seven-seater Model Y was classified as an SUV, however.)

But last week, the US Treasury decided to use the less-confusing consumer-facing EPA labels, which counted those models as crossover SUVs, thereby extending tax credit eligibility, at least until next month, when new rules about domestic sourcing of battery components go into effect, potentially disqualifying every EV on sale today.

The January price cuts might have been well-timed for new Tesla buyers, but they weren't exactly helpful to people who already owned the cars. A new study into used car prices by iSeeCars shows that used Tesla prices dropped by almost five percent following the January price cuts, compared to just 1.5 percent for the wider industry. That has knocked about $2,354 off the price of a used Model 3 and $2,816 off the price of a used Model Y, according to the study.