As of July 1, the credit will be reduced even further to $1,875.
From Jan. 1 next year, the $7,500 tax credit will drop to $3,750 around midyear, the Tesla website said. His SEC law suit sees him claiming that Tesla knowingly installed defective batteries and tampered with production numbers.
During a shareholder meeting in June, Tesla released a teasing image of the Model Y that has left much to the imagination, which makes sense as the SUV is still undergoing its final design.
The change represents a net price increase for Tesla buyers.
In March, GM Chief Executive Mary Barra called on Congress to expand the consumer tax credit for electric vehicles as the company boosted production of the Bolt in response to strong demand.
United States electric vehicle maker Tesla's exports to China are possibly on the verge of a possible slowdown because of a recent move by the Chinese government to increase import duties from the current 25% to a significantly high 40%.
Each manufacturer is allotted 200,000 credits before the phaseout begins.
Tesla has struggled to ramp up production for the Model 3, which it launched in July of a year ago.
Those automakers like Tesla who were early to market would have a head start not only in building electric cars, but also in reducing their battery costs.
Many of those same buyers who have not yet received their cars have waited for Tesla to follow through on its promise to build a vehicle for $35,000.
The Bloomberg Businessweek report adds that workers were also provided with free Red Bull so they could power through the harsh conditions associated with the Model 3 production.
Bloomberg described Tesla's decision as a "bold move", since the vehicle company has been "burning through billions of dollars as it's struggled to ramp up manufacturing of the Model 3 sedan". "Price-wise, look for it to slot in somewhere between the Model 3 and the Model S, perhaps in the $45,000-range for the base version".
In an interview with Bloomberg, Tesla CEO Elon Musk said "we were huge idiots and didn't know what we were doing" when redesigning the production process for the company's Model 3 sedan.
Former Tesla employee Martin Tripp has submitted a tip to the Securities and Exchange Commission accusing Tesla of both misleading investors and allowing potential risky vehicles to be sold to consumers. After that, reaching the target this quarter became inevitable.