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The Reason Tesla Doesn’t Pay Taxes

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WSJ

Mar 17, 2025 10:26 AM IST

Elon Musk’s company profits from green energy tax breaks passed by Democrats.

Now that Republicans in Congress are getting their act together to extend the 2017 tax reforms, Democrats are trying to make examples of businesses that pay little or no tax. Their latest target is Elon Musk’s Tesla, insinuating that the billionaire CEO is getting special treatment from Donald Trump. Tesla gets special treatment, all right, except it’s from government mandates and tax breaks that Democrats created.

Tesla CEO Elon Musk gestures as he arrives to visit the construction site of the US electric car giant Tesla, on September 3, 2020 in Gruenheide near Berlin, northeastern Germany. (AFP) PREMIUM

Tesla CEO Elon Musk gestures as he arrives to visit the construction site of the US electric car giant Tesla, on September 3, 2020 in Gruenheide near Berlin, northeastern Germany. (AFP)

“American taxpayers will shoulder the burden of tax cuts for Tesla, and they deserve answers about your efforts to secure massive tax breaks for billionaire corporations,” Massachusetts Sen. Elizabeth Warren wrote to Mr. Musk this month. She cites a report by the left-leaning Institute on Taxation and Economic Policy, which claims Tesla paid no federal income tax last year and only $48 million over the last three years on $10.8 billion in U.S. profits.

The report doesn’t allege that Tesla did anything wrong. Its offense in progressive eyes is taking advantage of tax breaks and write-offs that Congress has designed to encourage research and development and investment, especially in green energy.

Note first that most of Tesla’s $7.1 billion in net income last year doesn’t even derive from selling electric vehicles, solar panels or battery storage. Some $2.8 billion came from the sale of regulatory credits to other auto makers that need to comply with government EV mandates. As EV mandates have increased, so have Tesla’s profits from such credit sales.

Tesla made another $1.6 billion in interest income on cash and short-term investment holdings. Democrats can thank the Biden inflation for allowing companies to earn higher interest on their cash holdings. In addition, Tesla recorded nearly $600 million in book income from price appreciation in its bitcoin holdings, but this is akin to an unrealized capital gain.

The main reason Tesla pays little to no tax is because it lost money every year it was in business from 2003 until 2020. All companies are allowed to carry forward net operating losses to offset future tax liabilities. This encourages business formation since it can take years of sweat capital before companies turn a profit. The deduction also minimizes big year-to-year swings in income.

Democrats have long understood this, which is why they exempted most net operating losses from the Inflation Reduction Act’s 15% corporate alternative minimum tax. That tax hits companies that make an average of $1 billion in annual financial statement income over three years, or at least it was supposed to. Such book income, which follows financial accounting standards, is distinct from normal taxable income.

Ms. Warren and friends claimed this new corporate minimum tax was needed to ensure companies couldn’t use loopholes to dodge taxes. But then they created numerous loopholes in the minimum tax, notably for green energy and low-income housing tax credits. The effect was to increase the tax subsidy for such “investments.”

Tesla recorded $625 million from tax credits for its electric vehicles and $756 million for its solar and energy storage business last year, mostly from manufacturing batteries in the U.S. These tax credits can also be carried forward to offset future tax liabilities. Tesla had $1 billion in renewable energy tax credits on its books at the end of last year.

Democrats may loathe Mr. Musk these days, and they may shun Tesla’s cars. But their industrial policies helped to make him richer. Don’t blame Mr. Musk because Tesla doesn’t pay taxes. He and his company are merely playing by Democratic rules.

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