Fiat Chrysler to pay Tesla hundreds of millions for emissions credits

Chrysler and Tesla aren't known for having much in common.

Tesla builds nothing but pure electric cars, with no tailpipes. Chrysler was the first among American car companies to abandon its car lineup and focus on building big, heavy, thirsty SUVs and pickups.

That has put Fiat Chrysler in a bind with emissions regulators around the world, where it faces fines for missing emissions targets—especially of fuel-economy-dependent carbon dioxide, the primary global warming gas.

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It also, however, gives the company a symbiotic relationship with Tesla, which often pads its balance sheet by selling emissions credits to other automakers that need them—often including Chrysler.

A new report in the Financial Times on Saturday shows that the two automakers reached an agreement, worth hundreds of millions of dollars to Tesla, to pool their fleets in Europe, which will help FCA to avoid emissions fines from the European Union.

The report did not specify the amount of the agreement, but noted that it is in the hundreds of millions of euros.

FCA sells a full lineup of Jeeps in Europe, as well as Fiats, Alfa Romeos, and Maseratis, and Lancias. Overall, however, the company doesn't sell enough small, fuel-efficient cars to offset the emissions of Jeeps, Maseratis and other luxury or performance cars.

By pooling its fleet with Tesla's, the emissions of those Jeeps, Maseratis and other high-performance and luxury cars will be averaged with emissions from Tesla's electric cars and likely bring FCA's lineup into compliance with European standards.

As of 2015, the cars each automaker produces cannot average more than 130 grams of CO2 per kilometer, or less than about 42 miles per U.S. gallon. In 2021, those standards are dropping to 95 grams per kilometer, or about 57.4 mpg. In 2018, FCA's cars averaged 120.5 grams per kilometer.

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The Jeep Grand Cherokee earns a 21 mpg combined EPA fuel economy rating in the U.S. The Tesla Model 3 Mid Range is rated at 123 MPGe. Although it has sold a few examples of the Model S and Model X in Europe, Tesla just began to sell significant numbers of the Model 3 there, which could make a bigger difference to offset FCA's nearly 1 million annual European sales.

The new agreement could be the first to allow two separate automakers to pool their fleets. Until now, automakers have bought and sold credits individually from Tesla and other automakers—under California's system, for instance—and automakers' vehicle fleets were counted individually.