Tesla's cheapest Model 3 will be eligible for the tax credit for several more weeks
Tesla
Tesla's Model 3 Rear-Wheel Drive (RWD) variant will be eligible for the $7,500 Inflation Reduction Act (IRA) EV tax credit for a little longer than expected. The tax credit was initially expected to end for the rear-wheel drive vehicle on March 31st. However, the updated guidelines are now set to be released on April 18th, 2023. The updated guidance will cover battery production, assembly, and mineral sourcing requirements, affecting the eligibility of several electric vehicles (EVs) for full or partial credits.
The rules released for January 1 have been updated. Under the new guidance, at least 50% of an EV's battery components must be produced and assembled within the United States or in a country with a free trade agreement for the vehicle to qualify for the IRA tax credits. Additionally, at least 40% of the minerals used in an EV's battery must be sourced from the US or a country with a free trade agreement with the US. This percentage will increase by 10% annually, reaching 50% by 2024.
Impact on Tesla Model 3 RWD Tax Credit Eligibility
Tesla's Model 3 RWD battery pack, produced and assembled in China, uses CATL's LFP cells, which do not meet the new battery sourcing guidance. Consequently, the Model 3 RWD will not qualify for tax credits. The current Tesla Model 3 RWD price is $42,990 without the tax credit. However, Tesla's Model 3 Performance variant, equipped with domestically produced and assembled battery packs, will still be eligible for the full $7,500 EV tax credits.
A US official told Reuters that the Treasury's battery guidance would result in fewer EVs qualifying for credits. The Biden administration hopes the tax credit changes will lead to more EV sales as automakers adapt their supply chains to comply with the critical mineral and battery component rules.
Compliance Definitions: Extraction, Processing, and Recycling
To certify compliance with the US battery sourcing guidance, the Treasury has defined activities and processes related to the extraction, processing, and recycling of battery materials. The rules are part of a $430 billion climate bill aiming to reduce the United States' dependence on China for EV batteries and solar panels.
In February, the Treasury revised its vehicle classification definitions, making more Tesla, Ford, General Motors, and Volkswagen EVs eligible for up to $7,500 tax credits. However, some vehicles may see credits decline as the new battery guidance takes effect.
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A recent sighting at Giga Texas by drone operator and detail hound Joe Tegtmeyer has really caught our eye. A red Model Y was driving within the factory premises with its front and rear sections heavily camouflaged in Tesla’s standard black coverings. To top it off, there wasn’t just one, but two vehicles.
Tesla usually conceals vehicles when it has something to hide or test, and this timing suggests to us that a new variant of the world’s best-selling SUV is on its way. This leads us to two theories - a refreshed Model Y Performance or the anticipated, more affordable E41 Model Y.
Caught something interesting today … two heavily camouflaged cars driving on the W side of Giga Texas. Several viewers noted this in my short video on the autonomous drive.
— Joe Tegtmeyer 🚀 🤠🛸😎 (@JoeTegtmeyer) May 14, 2025
The front fascia, headlights, and hood are almost entirely obscured, with similar coverings applied to the rear, hiding the taillight design and bumper. This is a classic practice to keep new design elements under wraps before an official unveiling, and this is exactly what we saw with the Model 3 Highland and Model Y Juniper projects. The rest of the vehicle, including the central body and roofline, appear fairly consistent with the current Model Y.
Refreshed Model Y Performance?
One compelling possibility is that Tesla is preparing for the launch of the refreshed Model Y Performance. This speculation gains traction when we look at the launch of the refreshed Model 3 Performance. The Performance variant launched several months after the Long Range AWD and RWD variants and came with a bespoke front fascia. That fascia included air ducts for improved aerodynamics and brake cooling, helping to differentiate it both visually and by performance from other refreshed Model 3s.
It stands to reason that Tesla is preparing to launch the refreshed Model Y Performance. The extensive covering on the front fascia could be hiding a more aggressive, aerodynamically optimized bumper and air ducts to match the Model 3 Performance.
More Affordable Model Y?
Alternatively, this mystery vehicle could be the prototype of the previously discussed affordable variant of the Model Y, known as E41. Tesla has been working on further cost reductions for its highest volume vehicle, which includes cost-cutting components and features, as well as working on manufacturing efficiencies.
Tesla is focusing on making its existing models, like the Model Y, more affordable. In this case, the camouflage might be concealing simplified exterior features designed to help reduce production costs. This could include a revised front-end design, along with different headlights or taillight assemblies. Tesla could even forgo the distinctive front lightbar, as well as the afterburner-style rear lightbar, if it contributes to worthwhile savings.
This would be a step beyond the recently introduced Model Y Long Range RWD, which improves the vehicle’s range and lower the price by $4,000.
For now, the identity of this camouflaged Model Y remains a mystery. The fact that it is out and about at Giga Texas suggests that whatever changes Tesla has incorporated are significant enough to warrant covering up the front and rear of the vehicle.
Tesla’s FSD has made some truly incredible strides since V11, and since FSD V12.5, the experience has been hands-free for vehicles with a cabin camera.
However, a persistent point of frustration for many users is the strictness of the Driver Monitoring System (DMS), often referred to as the “nag.” In a recent interaction on X, Mike P detailed his grievances about how strict the DMS was.
This post drew a response from Elon Musk, who said, “You’re right.” Just a few days and a relatively unassuming point release later, Tesla has already decided to take action to improve its DMS.
The core issue here, which many who use FSD can attest to, isn’t about wanting to be irresponsible. Instead, it is about the current system’s sensitivity. The DMS can feel overly punitive for brief, normal interactions with the vehicle’s center display.
User Experience Woes
Mike P’s experience was common - you can’t even glance at the display to change the song or add a nav stop without the DMS warning you to pay attention.
If you continue, then you risk receiving a FSD strike. This leads to most drivers disabling FSD and typing their destination in while manually driving. For the casual observer, you can tell that it is clearly far more dangerous.
This highlights a safety paradox: a system designed to ensure attentiveness can sometimes lead to less safe workarounds. One must acknowledge that Tesla is in an odd position, being incredibly cautious about safety and ensuring it stays within NHTSA guidelines. However, the nag today is overkill in some situations, such as glancing at the center screen.
Tesla Confirms Change
Musk’s relatively concise answer resonated with his previous outlook on the matter. During Tesla’s Q1 2025 Earnings Call, he acknowledged that the DMS can be too strict and mentioned that Tesla is actively looking into ways to loosen those restrictions. He also pointed out the irony between the current system encouraging users to disengage FSD for simple tasks, only to re-engage it moments later - a less-than-safe cycle.
In a post on X, Ashok Elluswamy, Tesla’s VP of Autopilot AI, delivered welcome news. He confirmed that the latest FSD update, V13.2.9, includes a loosening of the cabin camera nag. This is an undocumented change, and one that we’re very excited to see.
This undocumented change is the latest step in Tesla’s overall plan forward Unsupervised FSD, which would drop the DMS completely. Previous updates, like the shift to vision-based driver attention monitoring in V12.4 and V12.5, aimed to balance safety with user experience.
What Does This Mean?
While the full extent of changes in V13.2.9 will become clearer as Software Update 2025.14.6 rolls out to more FSD users, the confirmation of loosened cabin camera nag suggests a few things.
This likely means greater tolerance for brief glances at the screen for essential tasks, whether it be adjusting climate settings, inputting a nav destination, or changing the current song. It could also include a potentially more forgiving threshold for looking away, especially in low-speed scenarios. The DMS does not ding you for using the display or looking away while the vehicle is waiting at a red light today, but Tesla could expand this to driving under 10 mph (16 km/h).
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