FCA pays for Tesla’s emission credits

FCA to pool its cars together with Tesla’s in order to gain emission credits from the electric car manufacturers, who, in return get much-needed capital.

Background

Tesla Inc. is an American automotive and energy company that specialises in electric car manufacturing and solar technology. Tesla designed the worlds first ever premium all-electric sedan – Model S which has become the best car in its class in every category. Currently, the company produces multiple electric cars, a Semi-Truck, solar panels, solar roof tiles, amongst a host of other periphery items. Tesla aims to make electric cars affordable and cheap in order to reduce the world’s thirst for hydrocarbons.

Fiat Chrysler Automobiles (FCA) is an Italian and American multinational corporation and is the world’s eight largest car manufacturer. The company operates a huge portfolio of automotive brands including Alfa Romeo, Chrysler, Dodge, Fiat Jeep and Maserati.

Analysis

FCA has reached an agreement with Tesla that will allow Tesla’s vehicles to be counted as a part of its fleet in return for hundreds of millions of Euros, although payment terms are still unclear. FCA has entered this agreement in order to avoid fines for violating new European Union emission rules. The move allows the carmaker to offset carbon dioxide emissions from its cars against Tesla’s in order to bring down its average emissions of the gas to legally permissible levels.

Tesla has repeatedly sought to gain funding and scale in an effort to make its products affordable for mass market consumption. Tesla’s position as a publicly listed company makes it vulnerable to shareholder interests such as profit margins. Tesla has, in recent years, made over US$ 1 billion by selling its emission credits in order to post quarterly profits, in a move set to appease its shareholders. The latest moves allow Tesla some more leeway as it struggles to get its behemoth giga-factories in Nevada and China up and running. The move comes as the company has struggled to deliver its products due to longer transit times.

Assessment

Our assessment is that Tesla is likely to continue to sell its emissions credits in the United States and Europe in an effort to continue to appease its shareholders. We believe that Tesla needs time to ensure its supply chain, economies of scale and systems are a well-oiled machine in order to adequately carry out its mission of increasing the proliferation of electric cars in order to drive down the demand for hydrocarbons. We believe that such emission credits must only be a temporary measure while giant companies such as FCA innovate to comply with regulations. Emission credits cannot become the basis for a new industry in which the world continues to be polluted; emission credits must eventually be phased out to force environmental compliance. 

Image Courtesy: Steve Jurvetson [CC BY 2.0 (https://creativecommons.org/licenses/by/2.0)]