U.S. electric car maker Tesla is about to lose an important source of revenue, which is likely to have a significant impact on its future profit performance.
Bloomberg reports that Stellantis NV, the automaker formed by the merger of PSA Group and Fiat Chrysler, has decided to withdraw from the European carbon credit agreement with Tesla, a move that will have a positive impact on Stellantis’ earnings this year, but may not be good for Tesla.
Carlos Tavares, CEO of Stellantis NV, was the first to announce the plan not to buy European carbon credits from Tesla when interviewed by French weekly Le Point. He also said, “With PSA providing Stellantis’ electric technology, we could automatically comply with CO2 emissions regulations as soon as this year.”
Tesla’s sales of regulatory credits from other automakers, which need assistance to comply with increasingly stringent emissions standards in Europe, mainland China and the United States, have increased steadily in recent years. Such revenue is directly attributable to the profitability of electric vehicle manufacturers such as Tesla and typically exceeds net income under generally accepted accounting principles (GAAP). Without the carbon credit sales in recent quarters, Tesla would have been in the red rather than in the black.
The report also points out that Stellantis will continue to consider working with Tesla in other regions if necessary to achieve the lowest legal compliance costs.
Fiat Chrysler was the first to announce an agreement with Tesla in May 2019 and said the move would cost the company 1.8 billion euros ($2.2 billion) over three years to buy carbon credits from Tesla in Europe and the United States.
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