Tesla Model 3 Performance: Musk announces more specs of future M3 rival

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On Tesla's website, under its electric vehicle incentives page, it shows that as of January 1, the federal tax credit for anyone who purchases a new Model S, X or 3 will be reduced to $3,750 from $7,500.

The announcement was first discovered by Jalopnik.

From Jan. 1 next year, the $7,500 tax credit will drop to $3,750 around midyear, the Tesla website said.

The change represents a net price increase for Tesla buyers. Despite this anti-selling, however, Model 3 reservations remained high, with Tesla most recently confirming that it still has a backlog of 420,000 orders for the electric vehicle.

While tax credits have helped boost electric-vehicle demand in the USA, they remain only 1.1percent of the market.

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The declining tax credit is seen as putting Tesla and GM at a disadvantage over newer entrants to the market, whose first 200,000 models will qualify for a full tax credit. The reasoning behind the law was that by the time the credits start to phase out, battery costs will be lower and the cars will naturally command less of a premium relative to conventional cars. "I believe Model 3 is the last bet-the-company situation", he said.

With more than 400,000 customers holding deposits on the Tesla Model 3, many of those customers will likely not receive any federal tax credit. When the base Model 3 becomes available, many may sell for about that price with Autopilot, all-wheel drive, or the premium package, plus an optional paint color or wheel choice.

Under a major tax overhaul passed by the Republican-controlled U.S. Congress late past year, financial incentives in the way of tax credits that lower the cost of electric vehicles are available for the first 200,000 such vehicles sold by an automaker.

Tesla opened the taps on Model 3 sales this week by dropping the exclusive reservations list it established past year, allowing anyone in the U.S.to order one of the small sedans with a $2,500 deposit. The Model 3 was created to be Tesla's first mass-market vehicle, meant to broaden the company's customer base beyond the luxury segment and increase the rate of electric-vehicle adoption.