A Tesla car in London.
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Fiat Chrysler said on Wednesday in a earnings call that it spent 300 million euros ($ 362 million) on regulatory credits last year in Europe alone – most of which it bought from Tesla.
The carmaker is now part of Stellantis, formed in January by the merger of PSA Groupe, Peugeot’s parent company, and Fiat Chrysler. Stellantis CFO Richard Palmer said in the call that the company expects to spend slightly less than EUR 300 million in 2021 in credits to avoid fines for CO2 emissions.
“We had credit costs in 2020 of around 300 million for Europe, most of which were Tesla,” he said, adding that spending will be lower “but not significantly” this year. (Palmer was previously CFO of Fiat Chrysler.)
In 2019, the FCA pledged to spend about $ 2 billion on environmental regulatory credits by the end of 2021.
Automakers struggling to meet strict CO2 emission standards in Europe can buy credits from less polluting automotive companies to meet new emission limits or to reduce their penalties if they do not stay within the standards.
Selling these regulatory credits has been an increasingly important part of Tesla’s business as the automaker seeks sustainable profitability. In 2020, Tesla generated $ 1.58 billion in revenue from sales of regulatory credits, almost tripling its 2019 value of $ 594 million. This is greater than the company’s $ 721 million profit reported in 2020, which was its first profitable year.
Fiat Chrysler is not the only automaker that buys these credits from Tesla. For example, Honda committed to buying credits at the end of last year, according to Schmidt Automotive Research.
As more car manufacturers manufacture and deliver their own electric vehicles, and in greater numbers, less need to rely on Tesla’s credits to meet environmental standards, even in strict states like California or regions like Europe. However, these standards can also become more stringent.
In its recent earnings call for the fourth quarter of 2020, analysts asked Tesla executives for guidance on regulatory credit sales in 2021. CFO Zachary Kirkhorn said, basically, that sales were too unpredictable to offer shareholders any concrete expectations.
“This is always an area that is extremely difficult for us to predict. Sales of regulatory credit for 2020 turned out to be greater than our expectations and it is difficult to give guidance on this,” said Kirkhorn. “What I said before is that, in the long run, sales of regulatory credit will not be a material part of the business and we don’t plan the business around it. It is possible that for a few additional quarters it will remain strong. It is also possible that it is not. “
He noted that most of Tesla’s regulatory credit revenue in the last quarter of 2020 “was not in line before the start of the quarter.” Credit sales revenue came from “discrete businesses that were closed during the quarter”.
A Stellantis spokesman declined to comment on Wednesday when CNBC asked for more details. A financial order is expected from the company soon.