Tesla price cut: Model Y undercuts Model 3 by $5,000 with tax credit

Tesla on Saturday once again cut prices on several of its models for the U.S. market, as part of around-the-world price cuts. And in the way it did so, those considering the Model 3 and Model Y in the U.S. may have to take a fresh look at the numbers.

After the recalibration, the base price of the Model Y rear-wheel drive has dropped $2,000 versus last week, to $44,630, while the Model Y Long Range AWD price has dropped by the same amount to $49,630. Both are eligible for the $7,500 EV tax credit, cutting the effective price for many households to just $37,130 and $42,130 respectively.

The Model 3 didn’t get a corresponding price cut and, as of Monday morning, retains its pricing at $42,130 for the base RWD Model 3 and $49,380 for the Model 3 Long Range AWD. The Model 3 also doesn’t qualify for the EV tax credit.

Tesla Model 3

So Americans in an income bracket that qualifies them for the federal EV tax credit—that’s a modified adjusted gross income (MAGI) limitation of $300,000 for married couples filing jointly, $225,000 for head of household, or $150,000 for other filers—can get the Model Y Long Range AWD for the same price as the base Model 3 RWD. And further, the base Model Y RWD now undercuts the base Model 3 by $5,000 for the tax-credit-eligible.

Production facilities and Tesla’s anticipation of higher production volume for the Model Y might also be playing a role in this pricing move. The Model Y is currently the top-selling EV—and passenger vehicle, in the world; it’s produced for America at both the Fremont, California, factory and at Austin, Texas, while the Model 3 is only made for the U.S. at Fremont.

2024 Tesla Model Y. — Courtesy of Tesla, Inc.

Prices of the Model S and Model X also dropped as part of the cuts, by $2,000 in both cases. Tesla has also dropped the price of its so-called Full Self Driving package to $8,000, from $12,000 (and otherwise $15,000 until recently), eliminating the $6,000 Enhanced Autopilot option that was necessary for adaptive cruise control functionality.

“Your car will be able to drive itself almost anywhere with minimal driver intervention,” Tesla currently touts as part of its explanation for FSD.

The company has