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I wish this article was written with a less biased tone. I'm genuinely interested in understanding it better. As far as I can tell, the article cites two thing

I wish this article was written with a less biased tone. I'm genuinely interested in understanding it better. As far as I can tell, the article cites two things: $500M tax savings by using an accelerated depreciation schedule (unclear if they saved $500M more by using accelerated vs a regular depreciation schedule, but I assume no) and they claimed $300M in tax credits. The article doesn't address the other $1.5B, presumably because it's easier to defend. I didn't read through the 10-K to try and figure this out. I don't really know enough about what an accelerated depreciation schedule implies, but, taken at face value, they'd have to pay more in taxes in a deferred year which doesn't seem like foul play to me. Tax credits seem to make sense for an EV company? EDIT: I did some learning, woohoo. Federal corporate tax rate in America is 21%. The $300M in tax credits is post-tax not pre-tax. The $500M is a pre-tax deduction. $2.3B - $0.5B = $1.8B $1.8B * 0.21 = $378M $378M - $300M = $78M So, I can't really explain why they didn't owe ~$78M in taxes, but I assume rounding and cursory other stuff. The article probably didn't call out other, minor deductions, but it's also fair of them to not have done so. I was wrong when I said, "The article doesn't address the other $1.5B, presumably because it's easier to defend." I think the real thing here is the weaponization of EV tax credits as some sort of boogeyman. Personally, I'm all for incentivizing EV companies to create in America.

hatthew 2y ago
I think the point of the accelerated depreciation is roughly equivalent to taking a loan with 0% interest. It's allegedly zero-sum with respect to net income. They get to claim this income later, with various benefits, e.g. more cash on hand in the intervening period, inflation makes that "debt" less valuable later, and it's possible that the corporate tax rate will be lower in the future, so the tax rate on "this year's" income is lower.
- SeanAnderson 2y ago
  That makes sense, thanks. Inflation makes debt cheaper to pay off in the future and transitioning into a right-leaning government hints at corporate tax rates being more favorable in the future. I guess the caveat here is that it can be adversarial to short-term investors since the businesses assets are becoming worth less more quickly which gives less time for income to offset those expenses. That makes the company's expense:value ratio look worse. I don't think the answer is to say that everyone needs to follow a linear depreciation curve. Fancy, new tech depreciates much more quickly in its early years than well-established tech. So the basic concept seems to make sense in some applications and I would assume Tesla has some pretty fancy tech that they're investing in. On the other hand, this area feels a little fishy to me because a more accelerated curve limits the ability for a government to effectively apply taxation to companies during their administration. If companies were able to instantaneously depreciate their assets for 100%, assuming investors were OK with it, they'd just do that whenever the political winds blew in their favor for maximum savings. It doesn't seem like there's any perfect, one size fits all solution. Accelerated depreciation seems fine, and can reflect the reality of investing in certain tech, but can also be abused by giving companies the ability to cash in when the time is right.
- deleted 2y ago
  [deleted]
- AnthonyMouse 2y ago
  The way depreciation works is that a company buys something, like a computer, which is a business expense. Then at the end of the year, you're out the $2000 that you paid, but you still have the computer, which is now a used device and is now a year older. So it's no longer worth $2000 but it's not worth nothing. Suppose it loses $500 in value. Then the book value of the asset becomes $1500 and you have depreciation expense of $500. That depreciation is the deduction for this year, they don't let you deduct the whole $2000 the year you bought it. Next year you can deduct some more, until the book value of the asset is scrap or you dispose of it or sell it. Estimating how much value it lost is subjective so the government specifies what percent of the value you can deduct each year. Straight line deprecation is when the depreciation expense is the same percentage of the original cost every year. Accelerated depreciation is when the early years use a higher percentage than the later years. In both cases the total amount of depreciation is the same but accelerated depreciation is often a better approximation for actual value. The true market value of a piece of equipment will decline more in absolute dollars in the first year than the fourth year. It's also what businesses typically pick when given the choice, because a bigger deduction now is better than a bigger deduction later. It's not any kind of tax dodge at all, it's just an accounting method in the tax code.
shiftpgdn 2y ago
[flagged]
- whoknowsidont 2y ago
  It's not rage-bait, it's a practical example of both how bad the tax code is and most topically how abusive Tesla is to the country that "hosts" it. Also there's really no such thing as fiduciary duty in public companies, not to the degree you're talking about or it's implied actions. I wish people would stop repeating it in that fashion, it's just a thought-terminating cliche. Violating fiduciary duty would be something like, spending a bunch of the corporations money on an investment you knew was fraudulent because a connection owns the other business/venture. It is NOT "you paid more in taxes than you could have gotten away with" or any other method of profiteering. TL;DR fiduciary duty =/= maximizing profit
  - shiftpgdn 2y ago
    [flagged]
    - steve_adams_86 2y ago
      At the very least, corporations must realize that they only function due to the commons. Tesla needs people to have roads to drive on, no? They require their supplies, workers, and goods to travel by roads to facilitate the work they do. Can't the company chip in a bit to ensure Americans have the infrastructure required to use their products? It's arguably negligent to stockholders to run a socially unsustainable business, but they look at things in terms of quarters rather than 10 years from now, so...
    - whoknowsidont 2y ago
      I find it endearing that you think this line of thought is worth repeating, if nothing else.
gonzobonzo 2y ago
> Tax credits seem to make sense for an EV company? That's one of the things that I've found odd. A lot of people that very strongly support things like tax credits for EV cars, in order to fight climate change, will then turn around and talk about how terrible they are when they're actually used, such as in the article here. A lot of times people don't seem to have a consistent view of what they actually want, and will be outraged by the results of policies they themselves supported. One can only imagine the headlines if these environmental credits were cancelled ("anti-environmental actions are going to bring about climate change and doom us all").
- dhc02 2y ago
  I may be the only one, but I was under the impression this whole time that all EV tax credits were for consumers who buy EVs, not companies who sell them.
  - staticlink 2y ago
    It amounts to the same thing, no?
    - sudosysgen 2y ago
      Definitely not, no. Credits on profits incentivize short term profit taking, while credits in products incentivize number of units shipped. The second is much better for society. Think about it from the perspective of a company deciding between selling low margin cheap EVs in the short term before process efficiencies kick in, or selling expensive EVs now.
      - missedthecue 2y ago
        The idea is to stimulate both supply and demand. Credits for consumer only stimulate demand which may not be enough to compel literally hundreds of billions of dollars worth of CapEx, not to mention opportunity cost.
Aurornis 2y ago
> The article doesn't address the other $1.5B $2.3 billion was the income, not the tax bill. Presumably $500M accelerated depreciation and $300M of tax credits covered the effective tax bill on $2.3B income.
- SeanAnderson 2y ago
  How would $800M in deductions cover $2.3B income to the tune of a 0% tax rate? Wouldn't they still be on the hook to pay taxes on $1.5B or is it not that simple? EDIT: Oh, apparently tax credits aren't pre-tax. So if their tax liabilities on $2.3B were $300M then they'd owe $0.
  - Aurornis 2y ago
    > Oh, apparently tax credits aren't pre-tax. Yes, tax credits reduce the tax bill, not the taxable income.
epa 2y ago
When you spend money on manufacturing and equipment, a company does not get to write off the full amount against their taxes when they buy it - they may have to spread it over a period of useful life of that equipment.
- scarab92 2y ago
  Unfortunately, accounting is full of concepts like this. Ideas which conceptually make accounting “better reflect” the real word, but in reality add a lot of complexity for very little benefit. Getting rid of accrual accounting and simply allowing full expensing of asset purchases with losses to carry over to the next tax period would save everyone a lot of headaches, for a negligible reduction in government tax revenue. It would also make a lot of accountants redundant, which is probably the main reason they oppose streamlining accounting practices.
_DeadFred_ 2y ago
Tesla's a crypto company. 25% of Tesla's earnings last quarter were crypto: https://cointelegraph.com/news/tesla-600-million-bitcoin-gain-q4-under-new-fasb-rule https://cointelegraph.com/news/tesla-600-million-bitcoin-gai...
- Dylan16807 2y ago
  That's multiple years of increase being accounted for all at once.
  - _DeadFred_ 2y ago
    So you're saying 25% of Tesla's earnings last quarter wasn't even earned last quarter and wasn't related to anything Tesla as business did?
    - Dylan16807 2y ago
      Yeah, pretty much. The value increase of Tesla's bitcoins since 2021/2022 was being ignored for accounting purposes until just now.
    - freeone3000 2y ago
      It was due to the change in IRS guidance on how to account for increases in value in cryptocurrency -- in short, treating it closer to a forex exchange (where the value is continually accounted) instead of a securities transaction (where the value is accrued when sold). The value then had to be retroactively accounted for.
deleted 2y ago
[deleted]
iforgot22 2y ago
Simpler alternative to figuring out the accounting tricks and 1-year deferred taxes: Amortizing their earnings and taxes for the past ~5 years.
johnnyanmac 2y ago
>I think the real thing here is the weaponization of EV tax credits as some sort of boogeyman. It's a hot topic right now since Trump just ended the EV credits. Which you'd think Musk would want to keep. And beyond this article, Musk has "quiet quit" on Tesla as a car company, based on his earning calls. They said little about cars and instead deflected the hype to "AI robots" in 2027. It's all just so weird.
- sureglymop 2y ago
  I think the pivot makes sense. EV credit subsidies are drying up, let's pivot to subsidies for AI developments which the new administration may enable in order to maintain an image of superiority over foreign adversaries.
- DoesntMatter22 2y ago
  I don't think he's quiet quit but interest rates are high and he's realized there's way more money in robots and self driving. The goal of a good CEO is to be forward thinking and that's what he's doing. Tesla continues to grow on many fronts and is still accumulating money in the bank. Meanwhile most other car companies are in big, big trouble. (Volkswagen, GM, etc)
- Auracle 2y ago
  The potential sales of robots is huge. Everyone I know with kids would easily pony up 10k for a robot just to do their dishes. It’s a massive untapped market.

hatthew 2y ago

I think the point of the accelerated depreciation is roughly equivalent to taking a loan with 0% interest. It's allegedly zero-sum with respect to net income. They get to claim this income later, with various benefits, e.g. more cash on hand in the intervening period, inflation makes that "debt" less valuable later, and it's possible that the corporate tax rate will be lower in the future, so the tax rate on "this year's" income is lower.

SeanAnderson 2y ago
That makes sense, thanks. Inflation makes debt cheaper to pay off in the future and transitioning into a right-leaning government hints at corporate tax rates being more favorable in the future. I guess the caveat here is that it can be adversarial to short-term investors since the businesses assets are becoming worth less more quickly which gives less time for income to offset those expenses. That makes the company's expense:value ratio look worse. I don't think the answer is to say that everyone needs to follow a linear depreciation curve. Fancy, new tech depreciates much more quickly in its early years than well-established tech. So the basic concept seems to make sense in some applications and I would assume Tesla has some pretty fancy tech that they're investing in. On the other hand, this area feels a little fishy to me because a more accelerated curve limits the ability for a government to effectively apply taxation to companies during their administration. If companies were able to instantaneously depreciate their assets for 100%, assuming investors were OK with it, they'd just do that whenever the political winds blew in their favor for maximum savings. It doesn't seem like there's any perfect, one size fits all solution. Accelerated depreciation seems fine, and can reflect the reality of investing in certain tech, but can also be abused by giving companies the ability to cash in when the time is right.
deleted 2y ago
[deleted]
AnthonyMouse 2y ago
The way depreciation works is that a company buys something, like a computer, which is a business expense. Then at the end of the year, you're out the $2000 that you paid, but you still have the computer, which is now a used device and is now a year older. So it's no longer worth $2000 but it's not worth nothing. Suppose it loses $500 in value. Then the book value of the asset becomes $1500 and you have depreciation expense of $500. That depreciation is the deduction for this year, they don't let you deduct the whole $2000 the year you bought it. Next year you can deduct some more, until the book value of the asset is scrap or you dispose of it or sell it. Estimating how much value it lost is subjective so the government specifies what percent of the value you can deduct each year. Straight line deprecation is when the depreciation expense is the same percentage of the original cost every year. Accelerated depreciation is when the early years use a higher percentage than the later years. In both cases the total amount of depreciation is the same but accelerated depreciation is often a better approximation for actual value. The true market value of a piece of equipment will decline more in absolute dollars in the first year than the fourth year. It's also what businesses typically pick when given the choice, because a bigger deduction now is better than a bigger deduction later. It's not any kind of tax dodge at all, it's just an accounting method in the tax code.

shiftpgdn 2y ago

[flagged]

whoknowsidont 2y ago
It's not rage-bait, it's a practical example of both how bad the tax code is and most topically how abusive Tesla is to the country that "hosts" it. Also there's really no such thing as fiduciary duty in public companies, not to the degree you're talking about or it's implied actions. I wish people would stop repeating it in that fashion, it's just a thought-terminating cliche. Violating fiduciary duty would be something like, spending a bunch of the corporations money on an investment you knew was fraudulent because a connection owns the other business/venture. It is NOT "you paid more in taxes than you could have gotten away with" or any other method of profiteering. TL;DR fiduciary duty =/= maximizing profit
- shiftpgdn 2y ago
  [flagged]
  - steve_adams_86 2y ago
    At the very least, corporations must realize that they only function due to the commons. Tesla needs people to have roads to drive on, no? They require their supplies, workers, and goods to travel by roads to facilitate the work they do. Can't the company chip in a bit to ensure Americans have the infrastructure required to use their products? It's arguably negligent to stockholders to run a socially unsustainable business, but they look at things in terms of quarters rather than 10 years from now, so...
  - whoknowsidont 2y ago
    I find it endearing that you think this line of thought is worth repeating, if nothing else.

gonzobonzo 2y ago

> Tax credits seem to make sense for an EV company? That's one of the things that I've found odd. A lot of people that very strongly support things like tax credits for EV cars, in order to fight climate change, will then turn around and talk about how terrible they are when they're actually used, such as in the article here. A lot of times people don't seem to have a consistent view of what they actually want, and will be outraged by the results of policies they themselves supported. One can only imagine the headlines if these environmental credits were cancelled ("anti-environmental actions are going to bring about climate change and doom us all").

dhc02 2y ago
I may be the only one, but I was under the impression this whole time that all EV tax credits were for consumers who buy EVs, not companies who sell them.
- staticlink 2y ago
  It amounts to the same thing, no?
  - sudosysgen 2y ago
    Definitely not, no. Credits on profits incentivize short term profit taking, while credits in products incentivize number of units shipped. The second is much better for society. Think about it from the perspective of a company deciding between selling low margin cheap EVs in the short term before process efficiencies kick in, or selling expensive EVs now.
    - missedthecue 2y ago
      The idea is to stimulate both supply and demand. Credits for consumer only stimulate demand which may not be enough to compel literally hundreds of billions of dollars worth of CapEx, not to mention opportunity cost.

Aurornis 2y ago

> The article doesn't address the other $1.5B $2.3 billion was the income, not the tax bill. Presumably $500M accelerated depreciation and $300M of tax credits covered the effective tax bill on $2.3B income.

SeanAnderson 2y ago
How would $800M in deductions cover $2.3B income to the tune of a 0% tax rate? Wouldn't they still be on the hook to pay taxes on $1.5B or is it not that simple? EDIT: Oh, apparently tax credits aren't pre-tax. So if their tax liabilities on $2.3B were $300M then they'd owe $0.
- Aurornis 2y ago
  > Oh, apparently tax credits aren't pre-tax. Yes, tax credits reduce the tax bill, not the taxable income.

epa 2y ago

When you spend money on manufacturing and equipment, a company does not get to write off the full amount against their taxes when they buy it - they may have to spread it over a period of useful life of that equipment.

scarab92 2y ago
Unfortunately, accounting is full of concepts like this. Ideas which conceptually make accounting “better reflect” the real word, but in reality add a lot of complexity for very little benefit. Getting rid of accrual accounting and simply allowing full expensing of asset purchases with losses to carry over to the next tax period would save everyone a lot of headaches, for a negligible reduction in government tax revenue. It would also make a lot of accountants redundant, which is probably the main reason they oppose streamlining accounting practices.

_DeadFred_ 2y ago

Tesla's a crypto company. 25% of Tesla's earnings last quarter were crypto: https://cointelegraph.com/news/tesla-600-million-bitcoin-gain-q4-under-new-fasb-rule https://cointelegraph.com/news/tesla-600-million-bitcoin-gai...

Dylan16807 2y ago
That's multiple years of increase being accounted for all at once.
- _DeadFred_ 2y ago
  So you're saying 25% of Tesla's earnings last quarter wasn't even earned last quarter and wasn't related to anything Tesla as business did?
  - Dylan16807 2y ago
    Yeah, pretty much. The value increase of Tesla's bitcoins since 2021/2022 was being ignored for accounting purposes until just now.
  - freeone3000 2y ago
    It was due to the change in IRS guidance on how to account for increases in value in cryptocurrency -- in short, treating it closer to a forex exchange (where the value is continually accounted) instead of a securities transaction (where the value is accrued when sold). The value then had to be retroactively accounted for.

deleted 2y ago

[deleted]

iforgot22 2y ago

Simpler alternative to figuring out the accounting tricks and 1-year deferred taxes: Amortizing their earnings and taxes for the past ~5 years.

johnnyanmac 2y ago

>I think the real thing here is the weaponization of EV tax credits as some sort of boogeyman. It's a hot topic right now since Trump just ended the EV credits. Which you'd think Musk would want to keep. And beyond this article, Musk has "quiet quit" on Tesla as a car company, based on his earning calls. They said little about cars and instead deflected the hype to "AI robots" in 2027. It's all just so weird.

sureglymop 2y ago
I think the pivot makes sense. EV credit subsidies are drying up, let's pivot to subsidies for AI developments which the new administration may enable in order to maintain an image of superiority over foreign adversaries.
DoesntMatter22 2y ago
I don't think he's quiet quit but interest rates are high and he's realized there's way more money in robots and self driving. The goal of a good CEO is to be forward thinking and that's what he's doing. Tesla continues to grow on many fronts and is still accumulating money in the bank. Meanwhile most other car companies are in big, big trouble. (Volkswagen, GM, etc)
Auracle 2y ago
The potential sales of robots is huge. Everyone I know with kids would easily pony up 10k for a robot just to do their dishes. It’s a massive untapped market.