Tesla raises Model Y prices by $1,000 after U.S. relaxes tax credit terms

© Reuters. FILE PHOTO: Visitors wearing face masks check a China-made Tesla Model Y sport utility vehicle (SUV) at the electric vehicle maker's showroom in Beijing, China January 5, 2021. REUTERS/Tingshu Wang

(Reuters) - Tesla Inc raised prices in the United States of its best-selling vehicle, the Model Y, by $1,000 after the government raised the ceiling on the price of crossover electric vehicles eligible for tax credits.

Tesla (NASDAQ:TSLA) increased the price of the Model Y Long Range to $54,990, and the Model Y Performance to $57,990, an increase of $1,000 each, according to current and previous prices posted on its website.

It was the second increase in price for the Model Y Long Range over the past two weeks.

The models remain 15% and 17% cheaper, respectively, than they were before Tesla slashed prices last month to stoke demand, before accounting for the $7,500 tax credit buyers now qualify to receive.

In a reversal, the Treasury Department ruled on Friday that crossovers like the Model Y would qualify for electric vehicle tax credits as long as they were priced below $80,000. The ceiling for cars, sedans and wagons is lower at $55,000.

That represented a win for Tesla, General Motors (NYSE:GM), Ford and other automakers that had pressed the Biden administration to loosen the vehicle definitions in the implementation of the incentive plan to make more of their lineups eligible.

At its previous price, a Tesla buyer of a Model Y would only have been able to add about $1,000 in extra features, such as a tow hitch, before pushing the price above the level at which the tax incentive would apply.

Tesla cut prices globally in January in response to signs of slowing demand. It cut prices for a second time in South Korea on Friday.

Chief Executive Elon Musk said last month that vehicle orders were roughly double the company’s output in January after the first round of price cuts. He said strong demand had prompted the company to make its first small price increase to the Model Y.