By Jonathan Weil

How much influence does Elon Musk have over the U.S. government? Enough that Tesla will need to make a judgment call on a disclosure issue that once would have been unthinkable for an American private-sector company to contemplate.

Here is the question at hand: Are Tesla and the government "related parties" for purposes of generally accepted accounting principles? The answer would appear to be yes, as wild as that might seem.

As the functional leader of the Trump administration's Department of Government Efficiency, or DOGE, Musk has rapidly amassed enormous power over vast portions of the U.S. government, nearly wiping out entire agencies and targeting others for elimination, while directing mass employee layoffs. Officially, Musk has been designated a "special government employee." He also is synonymous with Tesla, the electric-vehicle maker where he is chief executive, the largest shareholder and the face of the company.

The related-party designation would mean Tesla, in its disclosures to investors, could have to start reporting transactions it has with the government if they are significant. It also would underscore how powerful Musk has become. U.S. accounting standards say the reason for requiring such disclosures is that "transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist."

Other public companies have named the U.S. government as a related party before in their disclosures, including American International Group, General Motors, Fannie Mae and Freddie Mac. But that was because the government had bailed them out and taken large ownership stakes during the 2008 financial crisis. If Tesla were to start identifying the government as a related party in its reports to investors, it would be because of the amount of control Musk wields over the government, not the other way around.

Under U.S. accounting standards, Tesla and the government would be considered related parties if one of them "can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests."

Jack Ciesielski, founder of the asset manager R.G. Associates in Towson, Md., and a member of the Financial Accounting Standards Board's Emerging Issues Task Force, said Tesla and the government fit that description. "Tesla and Musk have significant influence over the U.S. government," he said. "I don't think there's any definition you can come up with that says they're not related parties."

The same analysis would apply in principle to Musk's other companies, including SpaceX, which has billions of dollars of federal contracts, and the social-media company X. However, unlike Tesla, those other companies aren't publicly held, so they don't file their financial statements with securities regulators.

Tesla in its latest annual report identified several of Musk's other companies as related parties, including SpaceX and X. It said its transactions with those companies didn't have a material impact on its financial statements. Tesla didn't say how much of its $98 billion of revenue last year came from the government. The company didn't respond to requests for comment.

Tesla's dealings with the government were the focus of a Feb. 13 letter to Secretary of State Marco Rubio by U.S. Sen. Richard Blumenthal (D., Conn.), who expressed concern about news reports that the State Department planned to buy $400 million of armored Tesla Cybertrucks. Before his letter, the agency had already said it put the process on hold and didn't plan to move forward with it. In a Feb. 13 post on X, Musk said: "I'm pretty sure Tesla isn't getting $400M. No one mentioned it to me, at least."

Blumenthal said Musk's dual roles as Tesla's CEO and head of DOGE "pose conflicts of interest so obvious that they hardly require explanation."

The importance of Tesla's relationship with the government goes beyond commercial transactions. Tesla customers can receive as much as $7,500 in federal tax credits for the purchase of electric vehicles, under current law. Tesla also has been the subject of numerous government investigations, including by the National Highway Traffic Safety Administration, where DOGE has been directing layoffs.

Tesla mentioned DOGE only once in its last annual report, filed Jan. 30. In a risk-factor disclosure, Tesla said it is highly dependent on Musk's services and that "he does not devote his full time and attention to Tesla," noting that he holds management positions at five other companies and is involved with other ventures, as well as DOGE.

Listing the U.S. government as a related party might not trigger any other immediate changes to Tesla's books, and it shouldn't be a problem for Tesla shareholders. If the government and Tesla do significant amounts of business together, the related-party designation would help provide transparency into the extent of those dealings. Investors would be the intended beneficiaries of the disclosure. Taxpayers, too, could benefit from some additional sunlight.

Write to Jonathan Weil at jonathan.weil@wsj.com

(END) Dow Jones Newswires

February 26, 2025 05:30 ET (10:30 GMT)

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