Tesla to lose millions as Stellantis ends CO2 credit buying deal

Stellantis, the carmaker formed earlier this year by the merger of Fiat Chrysler and PSA, has revealed that it no longer needs to buy emission credits from Tesla, which will result in millions of dollars of loss for the US group.

Stellantis said it expects to be carbon compliant in Europe this year with the help of its electric vehicle models. In 2019, Fiat Chrysler (FCA) entered into a deal with Tesla to pool credits to pass tough European carbon dioxide rules. It agreed to pay Tesla for the credits it got to offset the emissions from its own line-up.

But, now the Stellantis merger of Fiat Chrysler and PSA means that they can comply with the EU emission norms, according to chief executive Carlos Tavares.

SpaceX Founder Elon Musk

Image: Elon Musk, chief executive of Tesla and SpaceX.

Tesla made $518m selling credits in the last quarter while reporting a net profit of $438m. This only represents 6% of Tesla’s revenue, but the proceeds come with no inherent cost, so turnover directly translates into profit. Without these credit sales, Tesla’s last six quarters would not have posted such good numbers.

Richard Palmer, chief financial officer of Stellantis, said that about two-thirds of the €300m allocated by FCA for credit payments went to Tesla in Europe. That sum “is the type of benefit we will probably get by no longer participating in the pooling agreement with Tesla in Europe”, he told analysts and investors. “Clearly, one of the key benefits of the merger for the business is that we are compliant in the extended EU without any need to resort to the use of credits or of pooling arrangements,” he added.

PSA managed to meet the CO2 norms due to its higher mix of electric and plug-in hybrid models. Stellantis reported its first quarterly results as a merged group, with revenues up 14 percent to €37bn, due in part to higher overall volumes despite the global microchip shortage.

Stellantis lost about 11% of its planned production in the first quarter due to the semiconductor shortage, and it believes that the shortage could lead to an almost double loss in production in the current three-month period.

“As a base assumption I don’t think it’s unreasonable, obviously we’re trying to do better than that, but that is the sort of ballpark that potentially is going to be the impact in Q2,” Palmer said.

Countries and regions, which have strict emission norms make it difficult for legacy automakers with big guzzlers to meet the emission restrictions. As an alternative, countries like China, the US, and the EU allow carmakers to meet emissions rules by purchasing “credits” from groups that sell cleaner vehicles.

Under European emissions rules, the average CO2 output of cars has to be 95 grams per km or automakers face heavy fines. One way out of this is the ability to “pool” with cleaner manufacturers, meaning car makers pay the more environmentally friendly group for their “clean support.”

For Tesla, with its electric vehicles, seeing credit has been a lucrative business. The company made around $1.6bn selling credits across the world during 2020 alone.

Credits often account for much or all of the group’s profitability as it struggles to break even in its electric car sales.

Ford last year pooled with Volvo Cars for its hybrid cars credit, while Volkswagen pooled with the electric brand MG. 

Anna Domanska
Anna Domanska is an Industry Leaders Magazine author possessing wide-range of knowledge for Business News. She is an avid reader and writer of Business and CEO Magazines and a rigorous follower of Business Leaders.

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