Tesla (TSLA) is going to get up to $2 billion from Fiat-Chrysler to meet emission standards

We recently learned that Tesla and Fiat-Chrysler (FCA) reached a deal to pool their fleet together in Europe for the purpose of the latter avoiding emission requirement fines.

It was first reported to be worth a few hundred million dollars, but FCA now says that it will pay Tesla up to $2 billion for the emission credits.

The European Commission is putting in place an average CO2 emissions requirement of 95g per kilometer in automakers’ fleets next year.

It means that, on average, the vehicles sold by an automaker throughout the year needs to be no more than 95g per kilometer or they expose themselves to significant fines.

Of course, adding zero-emission vehicles, like all-electric vehicles, to the mix, can help bring the average down significantly, but Fiat Chrysler is seen as a lagger in the industry when it comes to bringing all-electric vehicles to market.

Like with the ZEV mandate in California, where automakers falling behind in electric vehicle sales can purchase credits from other automakers with a surplus, the EU allows automakers to pool their fleet together to avoid the fines.

Last month, Financial Times disclosed that FCA has made such a deal with Tesla worth “hundreds of millions of euros”, but the publication is now reporting that FCA will actually pay Tesla close to €2 billion ($2.3 billion USD):

“Fiat Chrysler Automobiles has said it will pay electric carmaker Tesla close to €2bn to help it meet tough new emissions targets and has reported a 29 per cent drop in first-quarter profits.”

FCA would especially need Tesla next year, but it plans to have its own electric vehicles in 2021 to drastically reduce the need to pool its fleet with Tesla, and it plans to be completely independent by 2022.

Electrek’s Take

Well, that escalated quickly. It went from a few hundred million dollars to a few billion dollars and it sounds like most of the money is going to come as soon as next year.

Tesla’s sales of emission credits have been extremely useful to help boost its financials over the years, but the impact has been somewhat limited by the availability of the credits and only a few markets implementing them.

This new deal with FCA is likely to have an even greater impact on Tesla’s financial and help the company accelerate some of its projects.

It also shows that regulations work. It will end up both helping Tesla and forcing FCA, which is taking its sweet time to release all-electric vehicles, to deploy EVs faster since I’m sure they don’t like giving up billions of dollars to a competitor.