Fiat-Chrysler is Ready to Pay Tesla up to $2.3 Billion for Emissions Credits so it can Meet European Car Emission’s Standards for 2020
EU target of average car CO2 emissions is 95g per kilometer.by Carter Stone, on
Carmakers across Europe are striving to meet a 2020 EU target of average car CO2 emissions of 95g per kilometer. To avoid the fines, the EU allows automakers to pool their fleets together and purchase credits from other automakers with a surplus. Last month, Financial Times revealed a deal between Tesla and Fiat-Chrysler (FCA) worth “hundreds of millions of euros”. According to the Financial Times, the understanding is now worth around €2 billion ($2.3 billion USD). The deal with FCA is expected to be an extremely great boost of money for Tesla but FCA should keep in mind that the sale of emission credits will not last forever. The new regulations while helping Tesla financially are pushing other carmakers to release their own all-electric vehicles as nobody in the industry is ready to keep dispensing billions to their own competitors.
Why Does FCA Need to Buy Emissions Credits?
In 2018, FCA’s average CO2 emissions was estimated at 123 grams per kilometer, moreover, the automaker was sued by the US Department of Justice in 2017 for allegedly using software to mislead regulators into thinking its cars were compliant. FCA resolved those charges for $800 million, but it also recently recalled almost 1 million cars in the U.S. for violating emissions standards.
Lately, FCA reached a deal with Tesla to pool together their fleet in Europe and avoid emission requirement fines. Last month, Financial Times revealed that the deal with Tesla worth “hundreds of millions of euros”, but the publication is now reporting that FCA will actually give Tesla around to €2 billion ($2.3 billion USD):
“Fiat Chrysler Automobiles has said it will pay electric carmaker Tesla close to €2 billion to help it meet tough new emissions targets and has reported a 29 percent drop in first-quarter profits.”
From a few hundred million dollars, Tesla went quickly to a few billion dollars, moreover, money seems to be coming as soon as next year. The deal also arrives at a great time, as Tesla is supposed to be under a meaningful cash crunch following a dark first quarter in 2019.
Tesla’s sales of emission credits have been extremely valuable to increase its financial situation over the years. According to a recent financial filing, the electric automaker made $103 million selling emissions credits in 2018, $280 million in 2017, and $215 million in 2016. This new deal with FCA is expected to give a remarkable aid to Tesla and accelerate some of its projects.
However, Tesla should keep in mind that the sale of emission credits will not last forever.
Even if FCA is definitively behind the rest of the electric car industry, it is planning its own lineup of EVs that will likely make the automaker completely independent, with no need of Tesla's fleet by 2022.
The regulations, in favor of EVs, are helping Tesla with financial boosts but are also pushing FCA, as well as other automakers, to release all-electric vehicles, since it’s clear that no-one likes to dispense billions of dollars to their own competitors.
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