Why Tesla doesn’t pay taxes despite being valued at over $780,000,000,000
Tesla has climbed to become one of the most valuable companies in the world, currently holding a staggering market cap of $783,300,000, yet the electric car manufacturer paid no tax last year, and barely any relative to incoming in the two years prior.
Currently sitting 11th on CompaniesMarketCap's overall rankings, making it the largest car company in the world, Tesla have grown significantly in the past five years - and especially since US President Donald Trump emerged victorious from the election last November.
Tesla's market cap increased from $800 billion to $1.42 trillion in just over a month between early November and mid December due to predictions that Trump's post-victory policy would be incredibly beneficial to the vehicle manufacturer, especially as it's 'founder' and CEO Elon Musk was a close ally of the president.
While market volatility, sales declines, and controversy surrounding Musk have contributed to a sharp decline in Tesla's stock market presence, returning it's value to pre-election numbers, it still remains shocking to find out that the company reportedly paid no tax last year, as indicated by the Institute on Taxation and Economic Policy (ITEP).
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ITEP outline that, despite U.S. income of around $2.3 billion, Tesla paid $0 of federal income tax at a 0% tax rate, with the same happening back in 2022 with almost double the amount of incoming at $5.5 billion.
It was only in 2023 that the company paid any tax whatsoever, forking out roughly $48 million on an annual income of $3.1 billion, making it so that while Tesla's three-year earnings totalled to $10.8 billion, they paid just 0.44% of that in income tax.
This justifiably might leave you confused and concerned, as many also felt following the release of Apple's financial records for the last quarter, but the Wall Street Journal have outlined why it's actually through a number of key 'loopholes' and financial regulations that allow Tesla to remain tax-free.
The first thing to outline is that a significant portion of Tesla's yearly net income isn't sourced from the sale of electric cars. $2.8 billion of that comes from regulatory credits to other companies so that they can meet electric vehicle mandates set by the previous Biden administration, with an additional $1.6 billion coming from interest on cash and short-term investments.
Primarily though, Tesla have taken advantage of regulation that allows companies to carry forward net operating losses from previous years in order to offset future tax burdens. The company lost money every single year from 2003 to 2020, meaning that it has significant leeway to avoid paying future tax despite recording record income.
On top of this, it also avoids the Inflation Reduction Act - which enforces a 15% minimum corporate alternative tax - through 'loopholes' designed for renewable energy income, which Tesla is obviously viable to take advantage of being an EV manufacturer.
Reports indicate that last year alone Tesla recorded $625 million in tax credits for EVs and $756 million for solar and energy storage, allowing them to completely offset any tax they would otherwise owe.
On top of this, these credits can be carried forward into future years if you have an excess, which has resulted in Tesla having an additional $1 billion in future credits that can be used towards taxes in the years to come.
Many have speculated that President Trump would target EV-focused regulation when he stepped into his second term - especially considering resurfaced remarks regarding electric cars - but his close relationship with Musk, which resulted in a bizarre Tesla-focused publicity stunt, could afford these tax-based 'loopholes' to continue as they benefit Tesla massively.