With ever-tighter emissions restrictions being put in place around the globe, automakers have been left to try and find ways to come into compliance. The industry-wide push towards electrification is evidence of this, but building EVs isn’t the only way for automakers to skirt hefty fines. Automakers who are struggling to or are unable to meet emissions compliance standards can purchase regulatory credits from rival companies that do not share this problem. Thanks to a new report from CNBC, we know now that FCA spent $362 million on regulatory credits in 2020 in the European market. According to the report, the vast majority of these credits were purchased from none other than Tesla Motors.
Stellantis CFO Richard Palmer confirmed FCA’s 2020 spending during an earnings call on Wednesday, specifically citing Tesla Motors as the automaker’s main source of these credits. Palmer formerly served as the CFO of FCA. The executive further noted that Stellantis currently plans to reduce this expenditure in 2021, with a goal to spend less than around $362 million USD (€300 million) on regulatory credits.
Tesla Motors is no stranger to selling these credits to their fellow automakers. In fact, the practice has increasingly become an important part of their business model, according to CNBC. In 2020, Tesla generated $1.58 billion in revenue from the sale of regulatory credits alone, nearly triple their $594 million figure from 2019. That $1.58 billion sum is greater than the $721 million in profit that Tesla Motors reported for the 2020 model year, which was their first profitable year on record. This of course means that the electric vehicle manufacturer has never been profitable on an annual basis without the sale of these credits.
As more automakers begin to crank out electric vehicles of their own, analysts have raised questions about the sustainability of this Tesla Motors business practice. In theory this industry-wide shift will reduce the need for automakers to purchase regulatory credits, though shifting regulations could always come into play. Should emissions regulations become even tighter in the coming years, it may still prove difficult for some automakers to come into compliance. Especially those who are in love with big ole V8 engines like FCA-turned-Stellantis. That said, Tesla CFO Zachary Kirkhorn told analysts during a Q4 earnings call that it’s extremely difficult to forecast the demand for these credits.
While it may be a stretch to say that FCA helped to keep Tesla afloat, this report does shine an interesting light on the poster child of the electric vehicle segment. FCA’s credit purchase was equal to 50 percent of Tesla’s profit from 2020, which is extraordinary in its own right. And while there is a huge difference between revenue and profit, it makes one wonder why Tesla maintains its valuation equivalent to the next 6 top car companies combined.