TSLA · 10-Q · 2026Q2 · Full report

Income Tax Rate Change and Valuation Allowance Release

Tesla, Inc. · 2026-07-23 · Importance 72 · Surprise 100 · Matches filing data

Following enactment of California Senate Bill 122, Tesla released the valuation allowance related to its California deferred tax assets (other than R&D tax credits) and concluded these deferred tax assets are more likely than not realizable. The release, together with an immaterial Pillar Two accrual, produced a $274 million income tax benefit included in provision for income taxes for both the three and six months ended June 30, 2026. As a result, the effective tax rate fell from 23% to 15% in the quarter and from 25% to 22% year‑to‑date versus prior‑year periods. Management notes the rate decreases were partially offset by non‑deductibility of stock‑based compensation related to the 2025 CEO Performance Award.

Key facts

• Effective tax rate decreased from 23% to 15% for the three months ended June 30, 2026, and from 25% to 22% for the six months ended June 30, 2026, due to the California SB 122 valuation allowance release and related items. source
• California Senate Bill 122 (SB 122) led to a release of the valuation allowance related to California deferred tax assets other than research and development tax credits, resulting in a $274 million income tax benefit in the three and six months ended June 30, 2026. source

Impact estimates