Tesla stock boom as questions revolve around Form 3 tax credit eligibility

all of the Tesla (TSLA) Model 3 auto models are now eligible for the full tax credit under the Inflation Reduction Act (IRA), the Internal Revenue Service verified Tuesday. While it’s still not clear how the global EV company accomplished this feat, the Model 3 is now priced at around $32,000. TSLA stock jumped early Wednesday.

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Tesla stock rose 3.5% to 228.60 Wednesday during market trading with Tesla Model 3 cars as low as $30,330 on the company’s website. Tesla officially says the Model 3 starts at $32,740 after the $7,500 IRA tax credit. Meanwhile, reports were released early Wednesday that Tesla has approved in principle a plan to set up a factory in India.

Tesla’s website recently stated that the base Model 3 car was eligible for the entire $7,500 tax credit under the IRA. The model previously qualified only at the $3,750 level. Tesla didn’t disclose how the Model 3 aligns with the IRA’s requirements for the full tax credit.

Meanwhile, the IRS made the official change on its website Tuesday morning. It declared that all Model 3 and Model Y cars were eligible for the $7,500 tax credit.

Form 3 tax credit multiplier

The Biden administration said on March 31 that vehicles eligible for the full $7,500 tax credit must contain batteries with specified amounts of components manufactured in North America and critical metals sourced from the United States or from certain countries.

Vehicles that only meet one of the critical metal or battery component requirements are eligible for a $3,750 tax credit. At the time, the basic rear-wheel drive Model 3, with its battery from China, did not qualify for the full tax credit.

Tesla stock shrugged off early losses and rose 1.7% to 221.31 on Tuesday. It turned higher after the IRS confirmed Model 3 eligibility. TSLA has gained in the past seven sessions. It has risen 117% since its early January low of 101.81.

Eligibility key

Late Monday, Morgan Stanley’s Adam Jonas wrote the qualification change “indicates that Tesla will likely adjust its supply chain to meet both requirements.”

Tesla used lithium iron phosphate (LFP) batteries from China’s CATL for the base Model 3. CATL commented on Monday that rumors that Tesla has ended their relationship are untrue and there is no change in the strategic partnership.

Jonas told investors that Tesla may have switched to making Model 3 battery packs in the US while still using battery cells made in China. Analysts have also floated the idea that with Shanghai Tesla exporting to Canada, it could free up US battery production for local delivery.

Or, as Jonas puts it, they could simply be “regulatory semantics.” Under guidelines issued by the US Treasury Department, EV manufacturers can average the qualifying critical mineral content used over a limited period of time.

Jonas said that language means Tesla can produce enough qualified Model 3 batteries at its Fremont plant to replace the rear-wheel drive Model 3 battery made in China.

Major indexes hide vast power; Five stocks in buy zones

Tesla stock

The TSLA Index jumped 1.7% to 217.61 on Monday. The stock cleared the 200-day moving average a week ago. Tesla stock rose 10.8% to 213.97 last week. On Friday, shares jumped 3.1%, clearing the official buy point of 207.79 from any cup or double bottom.

Tesla ranks third in IBD Automotive Group. It has a composite rating of 90 out of 99. Tesla stock has a relative strength rating of 74. The EPS rating for Tesla stock is 93 out of 99.

Please follow Kit Norton on Twitter @employee for more coverage.

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