Our research suggests that barely 20 states report the governmental assistance they give companies. 80% of firms receiving subsidies worth more than $1 million do not disclose such aid in their 10Ks.
It is perhaps well known that Tesla makes a fair amount of money from regulatory carbon credits. Its 2024 10K prominently displays the $2.7 billion of revenue Tesla made from automotive regulatory credits in 2024. This flows almost directly to their operating income (pretax) of $7 billion in 2024. But Tesla receives government assistance from numerous other avenues.
In 2024, Tesla got an undisclosed amount of assistance from Texas government for the Giga Texas Datacenter. In 2023, the Nevada Government Office of Economic Development granted a $330 million abatement for Tesla.
I could not find a reference to these grants/subsidies in Tesla’s 2024 10-K. To be fair, the 2024 10-K has listed government assistance for the following projects (excerpts reproduced below). But dollar numbers are generally missing:
“The IRA Incentives
For the years ended December 31, 2024, and 2023, the impact from our IRA incentive was primarily a reduction of our costs of revenue in our consolidated statements of operations.
Gigafactory New York—New York State Investment and Lease
We have a lease through the Research Foundation for the SUNY Foundation with respect to Gigafactory New York. Under the terms of the arrangement, the SUNY Foundation paid for a majority of the construction costs related to the manufacturing facility and the acquisition and commissioning of certain manufacturing equipment; and we are responsible for any construction or equipment costs in excess of such amount. This incentive reduces the related lease costs of the facility within the Energy generation and storage cost of revenues and operating expense line items in our consolidated statements of operations and was not material for any period presented.
Gigafactory Shanghai—Land Use Rights and Economic Benefits
We have an agreement with the local government of Shanghai for land use rights at Gigafactory Shanghai. Under the terms of the arrangement, we are required to meet a cumulative capital expenditure target and an annual tax revenue target starting at the end of 2023. In addition, the Shanghai government has granted to our Gigafactory Shanghai subsidiary certain incentives to be used in connection with eligible capital investments at Gigafactory Shanghai. For the years ended December 31, 2024, and 2023, the amounts received were immaterial.
Nevada Tax Incentives
In connection with the construction of Gigafactory Nevada, we entered into agreements in 2014 with the State of Nevada and Storey County in Nevada that provide abatements for specified taxes, discounts to the base tariff energy rates and transferable tax credits of up to $195 million in consideration of capital investment and hiring targets that were met at Gigafactory Nevada.
Gigafactory Texas Tax Incentives
In connection with the construction of Gigafactory Texas, we entered into a 20-year agreement in 2020 with Travis County in Texas pursuant to which we would receive grant funding equal to 70-80% of property taxes paid by us to Travis County and a separate 10-year agreement in 2020 with the Del Valle Independent School District in Texas pursuant to which a portion of the taxable value of our property would be capped at a specified amount. For the years ended December 31, 2024, 2023 and 2022, the grant funding related to property taxes paid were immaterial.”
How do we know that some of these disclosures are incomplete?
A non-profit named Good Jobs First compiles data on governmental assistance from various publicly available sources such as press releases and state government reports. A review of the Subsidy Tracker database suggests that the Gigafactory Texas Travis County assistance is for around $64 million over 10 years.
Subsidy Tracker lists a $15 million tax rebate from California in 2015. The same database lists a megadeal grants from Nevada in 2014 for a total of around $ 1.25 billion. In 2014, the state of New York has granted assistance of around $750 million. These grants may be given over 10 years or so. Hence, it is not clear whether materiality, from the taxpayer or even the investor’s standpoint, should be assessed for the total amount of assistance or for the yearly amount.
To further complicate matters, neither companies getting the subsidies nor the states giving them tell us everything.
Neither companies nor states tell all
The investor or an average citizen does not fully know how much state assistance was received by Tesla. You may ask whether this is much ado about nothing if the investor can get the same data outside the 10-K from a dataset such as Subsidy Tracker or from states’ websites. Unfortunately, states themselves are not fully forthcoming. Aneesh Raghunandan of Yale, Kai Dong of HKUST and I found corporate assistance data for barely 20 states on Subsidy Tracker database when we studied this issue in a 2023 paper.
As an example, consider Tesla’s 2024 10-K deferred tax footnote. The note reports that, as of December 31, 2024, the company had federal research and development tax credits of $1.48 billion, federal renewable energy tax credits of $1.01 billion, and state research and development tax credits of $1.06 billion. Most of their state research and development tax credits were in the state of California. However, we could not find a reference to these credits in the Subsidy Tracker database.
Didn’t the FASB fix this problem?
Not entirely. The FASB did step up required disclosure of governmental assistance in 2021 via a regulation called ASU 2021-10 on ASC Topic 832. But that regulation did not go far enough. The new standard only applies to specific types of subsidies (namely cash grants and tax abatements, but not income tax credits), potentially enabling firms to seek out subsidies that need not be reported.
In a more recent working paper, Aneesh Raghunandan of Yale along with two of Columbia’s PhD students, Dian Jiao and MJ Song, and I study 10-K disclosures of corporate assistance. While only 5.8% of firms in our sample spanning 2018-2022 provided such disclosures in 2018, this figure increases to 18.2% in 2022, the first full year after the standard’s adoption.
By benchmarking 10-Ks to whatever subsidy data we can get from Subsidy Tracker, we find that nearly 80% of firms receiving subsidies worth more than $1 million or more than 0.5% of their annual sales number (to avoid claims that these are immaterial) do not disclose the government assistance they received.
Even more intriguing, in 2018, we identified 70 firms reporting subsidies in their 10-Ks that were not covered by Subsidy Tracker. This number increased to 196 in 2022.
The FASB has a new exposure draft out on the topic of government assistance. Unfortunately, the new exposure draft is unlikely to force better disclosure of governmental assistance that companies get.
Governmental assistance is an arcane topic that is potentially too boring for the mainstream press to cover. That is a pity especially at a time when so much of other government spending is under scrutiny.