Daily Management Review

Tesla to protect Fiat Chrysler from fines in Europe


Fiat Chrysler Automobiles (FCA) took the opportunity to reduce its exhaust emissions while getting ready for more stringent emission requirements for cars in Europe in 2021. According to the Financial Times (FT), the company entered into an agreement with manufacturer of electric cars Tesla to create a so-called open pool, in which the emissions of cars of the two companies will be estimated in aggregate. Since Tesla electric vehicles do not have greenhouse emissions at all, the average FCA should be below the limit.

New, more stringent requirements for the level of harmful emissions of new cars will come into force In 2021 in Europe in accordance with the directive of 2009. In 2007, the limit level of CO2 emissions was 158.7 g per 1 km, and in 2015 - 130 g per 1 km. From next year it will be only 95 g CO2 per 1 km. If cars exceed this figure, the manufacturer will be required to pay a fine of € 95 for every extra gram of CO2 for each car they sell in Europe.

According to UBS estimates, the largest European carmakers may lose billions on these fines, since not all of them will be able to reduce emissions in the remaining two years to the level of marginal indicators. According to UBS experts, the total amount of fines may reach € 7.4 billion, and Peugeot, Fiat Chrysler and Volkswagen will suffer the most, since they sell more cars in the European market than other companies.

For example, Peugeot may lose a quarter of earnings per share. According to UBS estimates, this indicator will be 20% in FCA and 13% - in VW.

The same directive of the European Commission offers several solutions to the problem of compliance with the level of emissions. For example, with the help of innovations (install special equipment on cars to reduce emissions) or by switching to production of cars with low emissions. Yet, not all manufacturers will have time to take advantage of this opportunity for the remaining period. There is a simpler way: to calculate the average level of emissions not for each individual brand within the group, but for all its brands together, that is, to form a pool for emissions. For example, Volkswagen can compensate for the excess emissions of VW, Seat and Skoda at the expense of Porsche and Audi, the level of emissions of which is lower.

The EU directive allows forming pools not only at the level of one concern, but also between them. This was the first opportunity that Fiat Chrysler Automobiles took advantage of. And it chose a perfect partner - Tesla, whose cars do not produce greenhouse emissions at all.

In 2018, the average exhaust gas emissions from FCA cars were 123 g CO2. According to Jefferies analyst firm, in 2021, FCA will have to pay more than € 2 billion in fines and this is the highest figure among the 13 leading manufacturers.

Now, as part of an agreement with Tesla, zero emissions from electric vehicles of the American manufacturer will be added to emissions from all FCA member brands, including Alfa Romeo, Jeep and Maserati, to derive the average.

Global sales of FCA in 2018 amounted to 4.8 million cars. Of these, about 1 million fell on Europe. Worldwide Tesla sales in 2018 amounted to 245 thousand cars. About 30 thousand of them took place in Europe. Tesla sales in Europe officially started in 2013, and the American manufacturer of electric cars sold there about 100 thousand of its models in total.

As Julia Poliscanova, representative of the European research organization Transport & Environment, commented on the FCA and Tesla agreement, this is “the first such case in Europe when completely separate producers combine emissions as an effective strategy for meeting regulatory requirements.” According to her, such pools can remain effective for several years.

Neither FCA nor Tesla disclose financial details of the agreement or any details. However, according to FT, FCA "agreed to pay several hundred million euros." At the same time, Tesla made a similar proposal to form a pool for different automakers, but only FCA took advantage of it, which managed to submit an application before the deadline set by Tesla on March 25.

source: ft.com