For a number of years now, former Fiat Chrysler Automobiles (FCA) had purchased co2 credits from Tesla, in order for the company to maintain compliance with environmental regulations. The deal was good for both companies, as FCA could continue producing its vehicles that were generating billions of dollars in revenue and Tesla was lining their pockets with much-needed cash flow.
Now, as a new era is starting with the formation of Stellantis, the merged identity of FCA and Peugeot S.A. (PSA), the partnership with Tesla is about to change.
In an interview via videoconference with the French newspaper Le Point, Stellantis CEO Carlos Tavares announced that the newly formed Stellantis Group would meet all of its co2 goals in Europe as early as this year, thanks to its portfolio of PSA-based hybrid and electrified vehicle technologies. This means that the FCA part of the company would no longer require the needed credits from Tesla or any automaker to meet regulation standards.
European regulations require all car manufacturers to reduce co2 emissions for private vehicles to an average of 95 G/km (grams per kilometer) this year.
The move may prove easier said than done. According to a report from the Automotive News, FCA reached a multi-year agreement to purchase regulatory credits from the American electric automaker in 2019. Stellantis told the Automotive News that it was in talks with Tesla about the financial implications of backing out of the agreement.
“As a result of the combination of PSA and FCA, Stellantis will be in a position to achieve co2 targets in Europe for 2021 without open passenger carpooling arrangements with other automakers,” a Stellantis spokesman told the Automotive News.
From 2019 to 2021, FCA spent about $2.4 billion in obtaining regulatory credits from Tesla. Tesla reported in its quarterly reports during that time period that it made $2.365 billion by selling its credits. That revenue helped Tesla report positive Generally Accepted Accounting Principle (GAAP) income from the third quarter of 2019 to the first quarter of 2021 of $1.407 billion. This means that the electric car manufacturer spent almost $1 billion of its revenue from selling the credits to FCA, to cover its operating expenses.
Tesla could sell their credits to another manufacturer if there is a demand. Regulations will continue to tighten as new proposals from the European Commission could enforce new co2 emissions of 43 G/km by 2030.