Optimal Financing Strategy Based on Tax Shield Effects: A Case Study of Tesla

Traditional capital structure theories mostly focus on the idealized model of the tax shield effect, ignoring the financial distress costs and agency costs that may be caused by high debt ratios, resulting in significant differences between theory and practice. Therefore, combining actual enterprise data to explore how to balance the tax shield effect and implicit costs in the dynamic adjustment of capital structure has become an important topic in both theory and practice. This paper takes Tesla as a case to study the debt financing strategy based on the tax shield effect and its optimization effect on the weighted average cost of capital (WACC), aiming to combine market environment factors to obtain a more accurate WACC minimum value prediction model to maximize the tax shield effect. Regarding how to maximize the tax shield effect and minimize WACC through debt financing in the dynamic adjustment of capital structure, this paper first constructs a theoretical model and concludes that the higher the debt ratio, the lower the WACC. However, in the actual data analysis, the calculation results of the theoretical model differ significantly from the actual model. Therefore, the formula incorporates the constraints of financial distress costs and agency costs, which are relatively small in the early stage of enterprise development and have a greater impact when the enterprise is relatively mature, thereby changing the optimal WACC range.