FARADAY FUTURE INTELLIGENT ELECTRIC INC.FFAI
FARADAY FUTURE INTELLIGENT ELECTRIC INC. Income Taxes Disclosure
Income Taxes
The provision for income tax consisted of the following:
(in thousands) | 2024 | 2023 | |||||||||
| Current: | |||||||||||
| Federal | $ | — | $ | — | |||||||
| State | (4) | 2 | |||||||||
| Foreign | (263) | 107 | |||||||||
| (267) | 109 | ||||||||||
| Deferred: | |||||||||||
| Federal | (21,218) | (48,499) | |||||||||
| State | (10,013) | (22,277) | |||||||||
| Foreign | (504) | 6,577 | |||||||||
| (31,735) | (64,199) | ||||||||||
| Valuation allowance | 31,735 | 64,199 | |||||||||
| — | — | ||||||||||
| $ | (267) | $ | 109 | ||||||||
The components of losses before income taxes, by taxing jurisdiction, were as follows for the years ended December 31,:
| (in thousands) | 2024 | 2023 | |||||||||
| U.S. | $ | (324,929) | $ | (411,790) | |||||||
| Foreign | (31,185) | (19,845) | |||||||||
| $ | (356,114) | $ | (431,635) | ||||||||
Reconciliation of Statutory Federal Tax Rate to Effective Tax Rate
The provision for income taxes for the years ended December 31, 2024, and 2023 differs from the amount computed by applying the statutory federal corporate income tax rate of 21% to losses before income taxes. The following adjustments account for these differences for the years ended December 31, 2024, and 2023:
| 2024 | 2023 | ||||||||||
| Federal income tax expense | 21.0 | % | 21.0 | % | |||||||
| State income taxes (net of federal benefit) | 2.3 | % | 4.1 | % | |||||||
| Other permanent differences | (1.4) | % | (0.7) | % | |||||||
| Fair value debt adjustments | (10.3) | % | (5.8) | % | |||||||
| Disallowed interest | (1.8) | % | (1.2) | % | |||||||
| Foreign tax rate difference | 0.1 | % | 0.2 | % | |||||||
| Prior year true-up on deferred taxes | (0.2) | % | (0.1) | % | |||||||
| Return-to-provision adjustment | (1.3) | % | — | % | |||||||
| Uncertain tax benefit | 0.8 | % | (1.0) | % | |||||||
| Expiration of tax attributes | (0.3) | % | (1.8) | % | |||||||
| Valuation allowance | (9.0) | % | (14.7) | % | |||||||
| 0.1 | % | 0.0 | % | ||||||||
These adjustments result in an effective tax rate of 0.1% in 2024 compared to 0.0% in 2023.
The main changes in permanent differences related to fair value adjustments on convertible related party notes payable and notes payable and disallowed interest expense. The main changes in foreign tax rate difference and valuation allowance related to lower foreign losses incurred in 2024.
Deferred Tax Assets & Liabilities and Valuation Allowance
The tax effects of temporary differences for the years ended December 31, 2024, and 2023 that give rise to significant portions of the deferred tax assets and deferred tax liabilities are provided below:
| (in thousands) | 2024 | 2023 | |||||||||
| Deferred Tax Assets: | |||||||||||
| Net operating losses (“NOL”) | $ | 411,244 | $ | 353,839 | |||||||
| Research and development credits | 4,239 | 4,239 | |||||||||
| Accrued liabilities | 25,581 | 16,646 | |||||||||
| Capital loss | — | 3,420 | |||||||||
| Amortization | 8,803 | 9,921 | |||||||||
| Capitalized R&D expense | 53,125 | 74,835 | |||||||||
| Stock-based compensation | 450 | 418 | |||||||||
| Transaction costs | 35 | 45 | |||||||||
| Other | 379 | 594 | |||||||||
| Gross deferred tax assets | 503,856 | 463,957 | |||||||||
| Valuation allowance | (457,738) | (426,003) | |||||||||
| Deferred tax assets, net of valuation allowance | 46,118 | 37,954 | |||||||||
| Deferred Tax Liabilities: | |||||||||||
| Depreciation | (20,174) | (14,113) | |||||||||
| State taxes | (25,944) | (23,841) | |||||||||
| Gross deferred tax liabilities | (46,118) | (37,954) | |||||||||
| Net deferred tax assets (liabilities) | $ | — | $ | — | |||||||
The Company has recognized a full valuation allowance as of December 31, 2024, and 2023 since, in the judgment of management given the Company’s history of losses, the realization of these deferred tax assets was not considered more likely than not. The valuation allowance was $457.7 million and $426.0 million as of December 31, 2024, and 2023, respectively, with increases attributable to the current year’s provision. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment. During December 31, 2024 and 2023, the Company evaluated the realizability of its net deferred tax assets based on available positive and negative evidence and concluded that the likelihood of realization of the benefits associated with its net deferred tax assets does not reach the level of more likely than not due to the Company’s history of cumulative pre-tax losses and risks associated with the generation of future income given the current stage of the Company’s business.
The following table summarizes the valuation allowance:
| (in thousands) | 2024 | 2023 | |||||||||
| Beginning balance | $ | 426,003 | $ | 361,804 | |||||||
| Increase related to current year tax positions | 31,735 | 64,199 | |||||||||
| Ending balance | $ | 457,738 | $ | 426,003 | |||||||
Net Operating Loss Carryforwards and R&D tax credit carryforward
As of December 31, 2024, the Company has U.S. federal net operating loss carryforwards of $1,328.5 million, which will begin to expire in 2034, and foreign net operating loss carryforwards of $48.0 million, began expiring in 2024. The U.S. federal net operating loss carryforwards of $1,247.5 million generated post the Tax Cuts and Jobs Act may be carried forward indefinitely, subject to the 80% taxable income limitation on the utilization of the carryforwards. The U.S. federal net operating loss carryforwards of $80.5 million generated prior to December 31, 2017 may be carried forward for twenty years. As of December 31, 2024, the Company has California net operating loss carryforwards of $1,360.2 million, which will begin to expire in 2034.
The Company has 2035 U.S. federal R&D tax credit carryforwards and a state R&D tax credit carryforward of $4.2 million as of December 31, 2024 which will begin to expire in 2035. The U.S. state tax credits do not expire and can be carried forward indefinitely.
In accordance with Internal Revenue Code Section 382 (“Section 382”) and Section 383 (“Section 383”), a corporation that undergoes an “ownership change” (generally defined as a cumulative change (by value) of more than 50% in the equity ownership of certain stockholders over a rolling three-year period) is subject to limitations on its ability to utilize its pre-change NOLs and R&D tax credits to offset post-change taxable income and post-change tax liabilities, respectively. The Company’s existing NOLs and R&D credits may be subject to limitations arising from previous ownership changes, and the ability to utilize NOLs could be further limited by Section 382 and Section 383 of the Code. In addition, future changes in the Company’s stock ownership, some of which may be outside of the Company’s control, could result in an ownership change under Section 382 and Section 383 of the Code.
Reinvestment of Earnings
The Company’s intention is to indefinitely reinvest earnings in all jurisdictions outside the United States. As of December 31, 2024, and 2023, there was no material cumulative earnings outside the United States due to net operating losses and the Company has no earnings and profits in any jurisdiction, that if distributed, would give rise to a material unrecorded liability.
Tax Jurisdictions
The Company is subject to taxation and files income tax returns with the U.S. federal government, the state of California, , as well as under the tax laws of the People’s Republic of China. As of December 31, 2024, the 2020 through 2024 federal income tax returns and 2019 through 2024 state income tax returns are open to exam. The Company is not under any income tax audits. All of the prior year income tax returns, from 2018 through 2024, are open under China tax law.
Uncertain Income Tax Position
The aggregate change in the balance of unrecognized tax benefits for the years ended December 31, 2024, and 2023 is as follows:
| (in thousands) | 2024 | 2023 | |||||||||
| Beginning balance | $ | 12,972 | $ | 8,807 | |||||||
| Increase related to current year tax positions | 389 | 4,165 | |||||||||
| Decrease related to prior year positions | (3,274) | — | |||||||||
| Ending balance | $ | 10,087 | $ | 12,972 | |||||||
In accordance with ASC 740-10, Income Taxes — Overall, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. No interest and penalties related to the Company’s unrecognized tax benefits was accrued as of December 31, 2024, and 2023, as the uncertain tax benefit only reduced the net operating losses. The Company does not expect its uncertain income tax positions to have a material impact on its consolidated financial statements within the next twelve months. As of December 31, 2024 and 2023, the realization of uncertain tax positions were not expected to impact the effective rate due to a full valuation allowance on federal and state deferred taxes.
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About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.