Tesla sells its life line under European emissions legislation to Fiat Chrysler

During the weekend, the Financial Times announced that Tesla and Fiat Chrysler Automobiles (FCA) have reached an agreement that will allow Tesla to have a new influx of money and provide FCA with the enforcement of the new stringent European emissions regulations. Starting next year, new rules from the European Commission will begin to be phased in, according to which emissions from the entire fleet of a car manufacturer must not exceed 95 g / CO on average.₂/ km – a figure that equates to about 57 mpg for gasoline vehicles, or 76 mpg for diesel vehicles.

As of 2020, 95% of new cars from an automaker sold in the EU must achieve this goal, with the remaining 5% falling under the law in 2021. And sanctions in case of ## 147 ## Failures are draconian: a bonus on excess emissions of € 95 ($ 107) "per gram of CO₂ on the target, for every car registered in the EU that year. For some manufacturers, this has the potential to be ruinous; If the FCA portfolio was the same in 2021 as in 2018, the builder would have to pay about 2.77 billion euros (3.12 billion USD), out of a total net total profit of 3.63 billion EUR (4.1 billion USD).

Some equipment manufacturers are making considerable efforts to electrify in order to comply with the new rules; The VW E roadmap should be considered in this context, for example. But for others, the path to electrification is not so simple. Although the FCA has announced a bold plan of 9 billion euros ($ 10.5 billion) to electrify its range by 2022, its current portfolio of plug-ins is currently limited to the Chrysler Pacifica Hybrid (which no is not sold in the EU) and the Fiat 500e. car thought to lose the mark several thousand dollars for each sold.

Although the exact financial terms of the agreement are unknown, the FT says that the deal is in the order of "hundreds of millions of euros". Interestingly, the FT Also reports that Tesla had extended the offer to other OEMs to join this program pool but that no one had agreed to the deadline of March 25th. For Tesla, it will definitely be a welcome financial buoy. Since the company's inception in 2003, each of Tesla's four profitable quarters has been heavily dependent on selling zero-emission credits in California. Although the company has not yet released its results for the first quarter of 2019, we know that it has suffered a sharp drop in sales during the first three months of the year, particularly among high-margin electric cars, models S and X.

In addition, the company had to tap into its cash reserves to face a large bond payment of $ 920 million, and other debts would soon mature. And if that is not enough, the company must develop and build the Model Y electric crossover, which will require heavy capital investment. (This type of spending has fallen sharply in recent times, as Tesla has reduced its budget as much as possible, with the goal of improving its financial performance for the market.)

However, it is unlikely to be a long-term panacea; At some point, the FCA must be electrified (or stop selling vehicles in the EU). In the meantime, Tesla now needs to sell as many electric vehicles in Europe as possible.