Musk is moaning about ‘tax loopholes’ – but guess how much Tesla paid last year

I agree with Elon Musk: the US tax system does need reform. Hell, the global tax system is in need of reform because the job of funding infrastructure, vital public services and everything else society relies upon shouldn’t just fall on individuals. Corporations should pay their fair share too.

I suspect that’s where Elon and I part company, not least because Tesla, the company he is arguably best known for, pays a pittance. Especially when it comes to the US. America First? Um…

Over to Robert Reich, Bill Clinton’s former labour secretary and now a professor in California, who tweeted: “Tesla earned $2.3bn [£1.9bn] in the United States in 2024. You’d think it paid a lot in taxes, right? Well it paid precisely $0 in federal income taxes last year. You want waste and fraud? Look at what some big corporations and the rich are getting away with.”

The latter is a reference to the Department of Government Efficiency (Doge), the US agency aimed at slashing and burning the US federal government, which Musk heads up.

Reich drew a swift response from Sendil Palani, Tesla’s vice-president of finance, who rebutted the allegation of fraud. And I confess, I think Reich went too far with that because it implies criminality. Palani stated that Tesla “complies with all tax regulations in all of the regions of the world in which we operate”.

He went on to explain that Tesla paid zero US tax on its income because of the many years during which Tesla was loss-making. The carmaker has been in the red for most of its 20-plus-year history.

“This has been a very, very difficult business to build. Looking at any one recent year in isolation, therefore, will not provide the full picture,” Palani said.

It’s fair to say that he is a shade more measured than his hyperbolic and incendiary boss. But does he have a point?

Carrying forward tax credits from previous years in which losses were made is a long-established principle, and not just in the US. It is there to encourage businesses to invest and take risks that might cause them to incur losses, potentially heavy ones.

But here’s where it gets interesting because Tesla did not pay no income tax at all. In fact, it paid a tidy sum – just to foreign jurisdictions. You see this on page 81, note 13 of the group’s form 10-K filing with the Securities & Exchange Commission (SEC).

This tells us that over the last three years, Tesla kicked $3.8bn (£3.1bn) over to foreign jurisdictions compared to just $45m to the US federal government. So, America second? Or is it third? Fifth? Depends on just how many foreign governments Tesla paid tax to.

The company actually shelled out substantially more in US state taxes – $164m – than it did to the feds over the same period. So, I suppose it is contributing to the funding of vital services in at least part of America.

“Tesla is a heavily tax-driven company,” notes Richard Murphy, professor of accounting practice at Sheffield University. “Most of the incentives they have benefited from are in the US and most are federal. It has enjoyed incredibly low tax rates because of these advantages.”

Indeed so. Where do those incentives come from? If you appreciate irony, you may care to count how often the abbreviation IRA appears in the SEC filing. People of a certain age, for whom the abbreviation means something dark, have no need to fear. In this case, it denotes the Inflation Reduction Act, a now much-criticised centrepiece of the Biden administration’s programme, criticised in no small part because it didn’t actually reduce inflation.

Setting that aside, one of the main aims of this sweeping piece of legislation was to promote clean energy and tackle climate change.

As you might expect, Tesla, as an electric car maker, was a major beneficiary. The group’s filing is at pains to stress that a big chunk of those benefits went to buyers of the company’s product. “Qualifying Tesla customers may receive up to $7,500 in federal tax credits for the purchase of qualified electric vehicles in the US through 2032,” it says.

However, it is, I would submit, just a tad disingenuous to imply that Tesla, the corporate entity, didn’t also benefit from those tax breaks. It did. Handsomely. Incentives that offer customers $7,500 in federal tax credits are a big help when you’re trying to sell pricey electric cars, especially when compared to their petrol-powered equivalents.

And that’s not all. Tesla’s margins on energy generation and storage increased from 18.9 per cent to 26.2 per cent in the year ended 31 December 2024, “driven by cost reductions, including benefits from IRA manufacturing credits”.

Then there is this: “For the years ended December 31, 2024 and 2023, the impact from our IRA incentive was primarily a reduction of our costs of revenue.”

Nice! I see a tweet on X from Elon Musk’s account: “Thank you Joe Biden for these marvellous tax breaks that have helped MAKE TESLA GREAT AGAIN.”

But wait, is scrapping this what Musk is calling for when he loudly bangs the drum in favour of tax reform?

I think not. I’m surprised he wants to see any reform because at present, the company he runs is a massive beneficiary of that system, and given how much of his vast fortune is tied up in Tesla, so is our Elon.