Buying Credit: FCA Says It Won't Need to Pay EU's CO2 Fines

Fiat Chrysler Automobiles CEO Mike Manley said the automaker will not have to pay fines for failing to meet the demands of tightening European air quality regulations. But that’s not because the automaker is actually going to adhere to them. FCA has been pretty open in explaining its willingness to simply endure fines or, conversely, buy enough carbon credits to circumvent the issue entirely. And, over the next two years, the latter strategy will be how it copes with the EU’s pollution mandates.

It’s not ignoring efficiency, however. FCA still plans on releasing an improved Fiat 500 BEV while expanding its hybrid offerings via the Jeep brand this year. It’s just easier (and cheaper) to buy credits in advance, knowing the manufacturer will need them.

In a conference call we were not privy to, CEO Mike Manley said the company’s upcoming EVs (as well as hybrids) will account for about 5 percent of the manufacturer’s European sales. According to Automotive News, Manley also said FCA plans to improve fuel economy incrementally by updating existing powertrains and expanding availability of the small (1.0 and 1.3-liter) GSE engines — which will soon be manufactured in both Poland and Italy.

While the smaller three-cylinder is likely to stay isolated in Europe, the 1.3-liter is already available in the United States in the Jeep Renegade and Fiat 500X.

The rest of the corporation’s environmental initiative will come by way of purchasing regulatory credits from Tesla Motors. However, FCA said it only plans to so through 2021 and aims to become fully compliant with EU rules over the next few years.

From Automotive News:

While FCA expects it will avoid fines, it will still have a substantial bill to achieve compliance. CFO Richard Palmer said during FCA’s first-quarter conference call that the cost to achieve compliance in Europe this year is 120 million euros ($134 million). The global total cost for compliance in 2019 is set to be “moderately higher” than the 600 million euros ($672 million) FCA spent in 2018.

The CFO said compliance costs are a 50 basis point (0.5 percent) drag on FCA’s profit margin in the European region, which includes Africa and the Middle East. Electrification will also increase industrial costs, he added. Manley said FCA aims to recover 60 percent of the additional vehicle electrification costs via pricing.

Manley did not say whether FCA will also be able to avoid fines in 2021, when the new EU rules take full effect (next year automakers will have to comply with 95 percent of their sales).

Manley did say that he wants FCA to go without credit help from Tesla by 2022, which seems just far enough away for the promise to not hold much weight. At any rate, the present deal is mutually beneficial. Tesla has made over $2 billion from the sale of environmental credits — most of them ZEV credits from CARB-friendly states, primarily California. The EV firm should clear hundreds of millions more over the coming years, as both FCA and General Motors have indicated they will purchase said environmental merits for the foreseeable future.

[Image: Jonathan Weiss/Shutterstock]