FCA to Pay Tesla Hundreds of Millions of Euros for Emission Credits or Face Hefty Fines from the EU
As an automaker that produces only zero emissions electric vehicles, Tesla is in a unique position to take advantage of a little known rule—selling emission credits to other automakers.
Current regulations in the U.S. allow the company to earn credits for producing zero-emission vehicles and sell any extra credits to a rival automaker. According to the Financial Times, Fiat Chrysler Automobiles (FCA) will pay Tesla hundreds of millions of euros for emissions offsetting credits.
The credits are used to bring down average emissions from an automaker's fleet, which is what FCA is doing. The automaker formed an open pool with Tesla on Feb. 25, the FT said, citing a declaration with the European Commission, allowing FCA to include Tesla vehicles to help lower its average emissions across its model lineup.
The move allows FCA to pay Tesla for credits in order to offset carbon dioxide emissions from its model lineup.
FCA finds itself in a tough spot, the automaker can either pay Tesla for the additional credits to lower average emissions across its fleet, or face hefty fines up to billions of euros for not being able to meet EU emissions mandates when they become law in 2021.
Beginning next year, the European Union's target for average CO2 emissions falls to 95 grams per kilometer. FCA's average emissions in 2018 was 123 grams per kilometer, well above the target. In order to meet the new requirements, the rules allow carmakers to form "open pools" with other carmakers, which is what FCA did with Tesla in February.
The report did not mention exactly how much Fiat Chrysler has agreed to pay Tesla but the figure is lower than any fines the automaker would have to pay for failing to meet CO2 limits.
Tesla did not respond to requests for comment.
Tesla has made over $1 billion in the last three years by selling emissions credits in the United States, according to its annual report to the U.S. Securities and Exchange Commission. The credits in the past have inflated Tesla's earnings, allowing it to post quarterly profits when otherwise it would have posted a loss.
Tesla earned $103 million in 2018 from selling the credits and another $279 million in 2017, according to the company's quarterly 10-Q filings with the SEC.
In a statement, Fiat Chrysler did not directly address the amount that it would pay but added it would "optimize the options for compliance that the regulations offer."
"FCA is committed to reducing the emissions of all our products. The purchase pool provides flexibility to deliver products our customers are willing to buy while managing compliance with the lowest cost approach," FCA added in its statement.
FCA has previously purchased emissions credits from the Toyota Motor Corp. and Honda Motor Co.
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