Tesla credits would save 630 million euros to FCA

FCA is paying Tesla so it can include the vehicles of the latter in its average CO2 emissions. This is the latest attempt of the Italian-American automaker to meet the emissions target for the coming years. As the deadline gets closer, the manufacturers operating in Europe move faster through different ways.

Last year the average CO2 emissions of FCA totaled 125.3 g/km. The result was 5.2 g/km higher than the total registered in 2017, following big increases at its Fiat and Alfa Romeo brands. The lower diesel mix, more SUVs and the lack of electrified vehicles in its range explain the negative results.

The deteriorating situation in 2018 was not exclusive of FCA. Other 12 automakers posted increases in their averages in 2018, while five improved their positions. The bad news for FCA is that it was the group (excluding the premium makers) with the highest annual increase. Their average last year was higher than its main competitors: VW Group, Renault Group, PSA and Ford.

The penalty would be 3.2 billion euros

FCA’s potential fine at current levels would be 3.2 billion euros. The estimate is based on the current gap between last year’s average and the calculated target for 2021. According to the data provided by JATO Dynamics, FCA is due to meet a target of 89.8 g/km in 2021.

As a result, FCA needs to reduce the emissions by 35.5 g/km in only three years. It is the highest gap among the automakers selling more than 300,000 passenger cars per year in Europe. Consequently, it is probably the player with the most challenging times ahead.

The penalty, excluding any kind of eco-innovation credits to offset the total emissions, would be equivalent to 89% of its latest annual global earnings. In other words, FCA could pay the fine with one year of profits. The fine-profit ratio is better than some of its peers, but worse than the ratio posted by Ford and VW Group.

The effect of Tesla

There are no details of the amount involved in the agreement between FCA and Tesla, but we can calculate the initial effect on the penalty. Tesla may not make part of the top players in Europe by volume, but it can become a lifesaver for many troubled makers like Fiat Chrysler.

With its zero emission sedans and SUVs and its increasing popularity, Tesla can offset the negative impact coming from ICE cars. By adding its 2018 volume in Europe and considering the super credits policy, the initial impact of this operation would be a penalty saving of 630 million euros.

Nevertheless, the positive impact is expected to be larger, as Tesla is rapidly gaining traction in Europe thanks to the Model 3. The brand sold around 16,000 units in Q1 2019, which is more than half the total registered in the whole 2018. My own forecast indicates that Tesla would be selling around 70,000 units this year in Europe. With such a volume, the savings would total around 1.35 billion euros (see table).

FCA to improve its own emissions too

The agreement with Tesla is the result of years of bad planning and the refusal of adoption of new technologies. Marchionne always refused to invest on electric cars because no one in the industry was making money. That is partially true. But it is also true that not investing on this solution means also facing big fines and trouble to sell cars in the future.

Fortunatelly for the company, this policy has started to change, though quite late. According to the latest plans, the PHEV version of the Chrysler Pacifica will be joined by two PHEV Jeeps (Renegade and Compass), a fully electric version of the next generation Fiat 500, and the coming Alfa Romeo Tonale PHEV.

However, one thing is an announcement and another thing is the real introduction of the car. We are likely to see the Jeep’s first, which should hit the market by the end of this year. Next year we should see the all-new Fiat 500, and in early 2021 the Tonale could be hitting the dealers. If this schedule is right, the only real contributors to reduce the average emissions are going to be the two Jeep’s, and partially the Fiat 500.

Meanwhile, FCA would also drop some of its current models: Fiat 124 Spider, Alfa Romeo Mito and Giulietta, and Jeep Cherokee.

Source: European Commision, ICCT, JATO, FCA Financial results 2018