US electric car maker Tesla is bailing out the Italian automaker Fiat Chrysler for the possibility of facing significantly large European Union fines for not being able to meet the tough new pollution standards by selling some of the emissions credits that the US car marker had amassed.
According to documents published by the European Union, under new rules that restrict emissions of carbon dioxide (CO2), an “open pool” that allows the fleets of the two companies be counted together, had been formed between Tesla and Fiat Chrysler.
According to UBS, in order to meet the aggressive caps by 2021, CO2 emissions of vehicles sold in Europe have to be reduced by 25 per cent by the auto industry. According to the estimates of the Swiss bank, achieving that high emission standard would cut down the profits of the EU carmaker by €7.4 billion ($8.3 billion) combined.
With respect to the new standards, those auto companies that have been making heavy investments in the development of hybrid or electric vehicle technology, such as Volkswagen, are in a much better position. Those lagging behind in new technology development will need to find out other strategies to escape the fines.
The automaker with the “highest risk of not meeting the target” is Fiat Chrysler warned the UBS analysts last week.
“Fiat Chrysler is facing the biggest challenges to comply with CO2 targets due to a period of under-investment in electrification,” the UBS analysts wrote. The note also added that it’s “starting almost from scratch.”
One way for the company to bring down the risk of the fines is teaming up with Tesla. A similar pool has also been formed by Japanese automakers Toyota and Mazda.
The new EU regulations that give auto companies to form partnerships and join fleets to meet CO2 targets gives “flexibility to deliver products our customers are willing to buy while managing compliance”, Fiat Chrysler said on Monday. “The whole point of a CO2 credit market is to leverage the most cost-effective ways to reduce overall greenhouse gas emissions in the market,” the company said in a statement.
This arrangement between the two companies was first reported by The Financial Times which said in its report that hundreds of millions of euros for its emissions credits is being paid by Fiat Chrysler to Tesla.
There was no comment available from Fiat Chrysler about the financial details.
Tesla making use of its left over carbon credits to get huge financial gains from its traditional competitors had happened earlier also. Selling of credits tied to its electric cars in the United States earlier this decade has generated millions of dollars. Auto companies are not being able to meet their sale targets for zero-emissions vehicles.
The cash received form Fiat Chrysler could be of use for Tesla. There were concerns expressed about its cash position and cash reserves after Tesla reported a sharp decline in its deliveries in the first quarter of the current year.
(Adapted from CNN.com)