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Tesla Model Y Should Be 7 Seater Only

The IRA is classifying the Tesla Model Y as a Sedan, qualifying it for only up to $55,000 for a tax credit. Tesla should only make the 7 seater version to qualify for the $80,000 SUV credit.

IRA Tax Credit and Model Y

As the current IRA (inflation reduction act) stands, the Tesla Model Y with 5 seats will only qualify for a $7,500 tax credit if it has 7 seats. The reason for this is that the IRS is using weight as the criteria for a vehicle being a sedan ($55,000 limit) or an SUV ($80,000 limit).

The Tesla Model Y runs into a problem here because when it has 5 seats, it is under the weight that qualifies it for the SUV, $80,000 limit and it only qualifies for up to $55,000, which is less than what it sells for (by about $8,000).

The Tesla Model Y that has 7 seats does qualify for the $80,000 tax credit and SUV category because it is heavier. This doesn't make a lot of sense because the vehicle is the same shape and size either way.

Tesla is going to have to get creative to handle this. Here's what they can do:

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What Tesla Should Do

Tesla can simply create a range upgrade that costs about $8,000 and sell the 5 seat Model Y for $54,999. The base range could be something like 100 miles of range and then another 133 miles of range can be unlocked after the purchase of the vehicle.

Another thing Tesla can do is to only sell the 7 seat version of the Model Y. This would make all Model Y vehicles produced a weight that classifies them as an SUV and gets them the $80,000 tax credit. Most likely, Tesla will not raise the price beyond the $66,000 the 7 seat is currently.

Tesla can also sell the 7 seat Model Y for the current 5 seat Model Y price and have the seats put down and unlockable with a seat upgrade that costs $3,000. This is because adding the 2 additional seats to the 5 seat Model Y costs about $3,000.

Any of these options are nuisances for Tesla, but they have the engineering that could implement them very quickly. The good news is that the Tesla Model 3 long range and standard range vehicles qualify and I expect to see the Tesla Model 3 long range at a price of $54,999 to qualify for the sedan tax credit.

What do you think Tesla should do about this tax credit situation with the Model Y?

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Jeremy Johnson is a Tesla investor and supporter. He first invested in Tesla in 2017 after years of following Elon Musk and admiring his work ethic and intelligence. Since then, he's become a Tesla bull, covering anything about Tesla he can find, while also dabbling in other electric vehicle companies. Jeremy covers Tesla developments at Torque News. You can follow him on Twitter or LinkedIn to stay in touch and follow his Tesla news coverage on Torque News.

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Dave Frecker (not verified)    January 2, 2023 - 12:37PM

I would suggest Tesla add some removable weight to the 5 seat MY perhaps in the frunk. This should qualify the car under the archaic IRS rules as an SUV.