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Tesla hikes Model Y prices after EV tax credit expansion

Tesla (TSLA) is taking the opportunity to ram through some price increases, thanks to Uncle Sam.

On Friday the IRS released new guidance changing the definition it used to classify vehicles as SUVs, using the formulation the EPA uses for EV tax credits. This then allowed many vehicles like some versions of the Tesla Model Y, Volkswagen ID.4, and Cadillac LYRIQ to use the higher $80,000 MSRP price cap for EV tax credit exclusion.

Like clockwork, Tesla raised the price of the Model Y long range, currently the cheapest Model Y available, by $1,500 to $54,990. The Model Y Performance model also rose $1,000 to $57,990.

Of course these new prices are still considerably lower than what the vehicles cost prior to the massive price cuts Tesla initiated back in early January, which the company used to gin up demand (and also address shortcomings in EV tax credit eligibility for the 5-passenger versions of the Model Y).

Tesla's Model Y pricing as of February, 6th 2023
Tesla's Model Y pricing as of February, 6th 2023 (Tesla US website)

Also in a slightly surprising move, Tesla lowered the price of the Model 3 sedan, with the Model 3 RWD version dropping $500 to $43,490.

With the higher price caps coming into play with the new IRS rules, and CEO Elon Musk stated that demand was outstripping supply last month during Tesla’s earnings call, it seems Tesla has a lot more room to run in terms of incrementally raising prices, so long as the $7,500 tax credit is still in play.

“[As] Tesla raised Model Y's [prices] roughly $1,500 with the $55k cap no longer in play and ultimately based on robust demand (2x production levels) we could see some modest price increases over the coming months that gives more flexibility to Tesla with the tax credit now set,” Wedbush Analyst Dan Ives said in a note today.

While some expect an EV price war given Tesla’s earlier deep price cuts, that scenario has not materialized. Ford was the only manufacturer that considerably lowered prices of its Mustang Mach-E SUV, which was a direct competitor of the Model Y. GM and Volkswagen declined to lower prices of their EVs.

The bottom line for consumers looking at EVs, and in particular a Tesla Model Y, would be to place an order now before prices get hiked again.

As for Tesla, shares are climbing higher, up over 3% in early trading today and a whopping 60% year to date, as the demand story both here, and globally, seems to be improving.

Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.

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