Tesla to Lose Around $240 Million in Revenue in 2021 as Automaker Stellantis Says it Will No Longer Need to Buy Emission Credits

author: FutureCar Staff    

Electric automaker Tesla is about to lose a big chunk of its annual revenue from selling emssions credits to Stellantis NV, the newly formed company after automaker French automaker PSA Group and Fiat Chrysler Automobiles announced an agreement to merge in 2019. The deal was finalized in January making Stellantis the world's fourth largest automaker.

Stellantis announced on Wednesday that it will no longer need to purchase emissions credits from Tesla as the European automaker expects to reach its emission targets this year. The emission credits purchased by Stellantis would have given Tesla roughly $240 million in additional revenue this year.

But Stellantis announced Wednesday that its exiting a European emissions-credit agreement with Tesla. Complying with standards on its own will save the company roughly 300 million euros ($360 million), around two-thirds of which would have gone to Tesla, Stellantis Chief Financial Officer Richard Palmer said.

As reported by Bloomberg, Stellantis CEO Carlos Tavares announced the plan to end its agreement with Tesla in an interview with the French weekly Le Point. The company says it will consider partnering in the future with Tesla if needed, in order to achieve the lowest cost of compliance.

Before the merger with PSA to become Stellantis, Fiat Chrysler had previously purchased emissions credits from automakers Toyota and Honda.

A significant portion of Tesla's annual revenue comes from selling emission credits to other automakers, although its something the company downplays. Last month, Tesla announced its Q1 financial results and reported $518 million in revenue from sales of regulatory credits during the first quarter of 2021. In Q4 2020, the additional revenue was $410 million, giving Tesla a windfall of nearly a billion dollars.

Current regulations award automakers credits for producing zero-emission electric or hybrid vehicles. Companies can sell any extra credits to rival automakers as a source of income. The credits are used to bring down average emissions from an automaker's fleet, which Stellantis has been working to reduce. 

Automakers that fail to meet their emission targets can buy credits from rival automakers in order to offset average emissions from their lineups. As a producer of only electric cars, Tesla is awarded more emission credits than any other automaker. Over the years, its' been a source of additional revenue for essentially doing nothing but building electric vehicles. 

As reported by Bloomberg, the revenue goes straight to the electric-car maker's bottom line and has exceeded net income on a generally accepted accounting principles (GAAP) basis. Without the extra income from credit sales in recent quarters, Tesla would have recorded losses instead of profits.

The European Union's target for average CO2 emissions fell to 95 grams per kilometer in 2020. However, FCA's average emissions in 2018 was 123 grams per kilometer, well above the target. In order to meet the new requirements, the rules allow carmakers to form "open pools" with other carmakers, which is what FCA did with Tesla.

In Feb 2019, before FCA's merger with PSA, the company formed an open pool with Tesla allowing it to include Tesla vehicles to help lower its average emissions across its model lineup. The move allowed FCA to pay Tesla for credits in order to offset carbon dioxide emissions from its model lineup.

At the time, the automaker said it would cost the company 1.8 billion euros over three years. 

FCA was in a tough spot at the time. It could either build more electric vehicles, pay Tesla for the additional credits to lower average emissions across its fleet, or face billions of euros in fines for not being able to meet EU emissions mandates when they become law this year.

However by 2021 after the merger with PSA, Stellantis now has a new mix of PSA-branded plug-in hybrid and fully electric models in its lineup, which will continue to grow this year. Therefore the automaker won't need as much help from Tesla or others going forward. 

FutureCar Staff