The IRS says the Tesla Model Y is not NOT an SUV, then changes its mind

by | Last updated on Jan 18, 2023 at 1:46PM | Published on Jan 10, 2023 | EV

Tesla Model Y, Cadillac Lyric can't get federal tax credit, feature image

A few days ago, the IRS announced the Tesla Model Y and Cadillac Lyriq wouldn’t be eligible for the $7,500 federal tax credit as they’re NOT SUVs.

However, the IRS did a complete 180 and changed its mind after facing backlash from customers and Tesla.

READ MORE: The $300,000 Cadillac Celestiq is worth the wait

So how does it work?

Buyers can get a $7,500 tax credit on an EV built in the North America as long as it costs less than $55,000 – or $80,000 if it’s an SUV.

The Lyriq and the Model Y are both made in the US, and they both cost less than $80,000.


The IRS initially claimed the Tesla Model Y can’t be considered an SUV.

And it said the same thing about the Lyric.

Cadillac’s parent company GM released a statement to address the issue.

The company told Reuters it is “addressing these concerns with Treasury”, hoping that “forthcoming guidance on vehicle classifications will provide clarity.”

Tesla CEO Elon Musk responded, too.

However, in true Musk style, his response was a more direct.

He tweeted: “Penalized for making our SUV too mass-efficient? That is bizarre.”

What made the whole thing even more head-scratching was the Model Y only failed to qualify for the tax credit in its five-seat configuration.

Alternatively, customers could opt for the optional $4,000 seven-seat option and for some reason the IRS thought this made it an SUV.

Tesla customers immediately took to Twitter to voice their anger.

Tesla investor and businessman Saywer Merritt tweeted: “The EPA clearly classifies the Model Y as a small SUV, so why doesn’t the IRS do the same?”

Entrepreneur Ross Gerber says the IRS’ decision will end harming US manufacturers.

“The IRS guidelines are absurd and help foreign competion. [It] seems illogical,” Gerber wrote.

However, other Twitter users argued that these EVs shouldn’t qualify in the first place because they’re luxury vehicles.

JenniferSensiba tweeted: “Taxpayers should not be subsidizing the Cadillac Lyriq, period. Cheaper vehicles should get credits.”

After facing enormous backlash, the IRS updated its list and all Model Y trims are now eligible, including 5-door trims.

If you live in the US, you can share your comment on the IRS website.


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