Lux Research once told us Tesla made a profit with the Model 3. Yet, the quarterly reports from the company show the CO2 credits sold to FCA were fundamental to stay in the black. After FCA merged with PSA to form Stellantis, things changed. Carlos Tavares – Stellantis CEO – said on May 4 it would not need to buy these credits anymore, which is pretty bad news for Tesla.
In an interview with the French newspaper Le Point, Tavares said PSA’s technology would allow Stellantis to achieve all CO2 goals in the European Union as early as this year. With that, the FCA branch of the company will not have to pool with Tesla or any other automaker to be compliant with the environmental regulations.
According to Automotive News, FCA spent about $2.4 billion to buy Tesla’s environmental credits from 2019 up to 2021, the precise period in which the company reported profits. According to Tesla’s quarterly reports, the company earned $2.365 billion in the same period from “regulatory credits.”
Summing up all the positive GAAP income results from Q3 2019 up to Q1 2021, Tesla made $1.407 billion, which means it still consumed $1 billion of those credits covering expenses with the business. This is why Sebastian Blanco wrote at Car and Driver that Tesla “continues to lose money making and selling vehicles.”
A Stellantis spokesman said the company was discussing with Tesla the financial implications of not buying these credits anymore. There is no information on the deal the automakers have regarding them. However, an article from Automotive News from April 17, 2019, stated that FCA had struck a multi-year deal with Tesla at the time for them. That said, Stellantis could be discussing a way out of such a deal if it binds it to buy credits regardless of needing them or not.
Tesla could have more than a way out. According to Dan Levy, a Credit Suisse analyst, the demand for CO2 credits will increase in 2021. Tesla could sell them to other companies. The question is whether the demand will be as high as FCA’s.
Another option is to focus on profitable cars and cut the investments in new factories and production expansion. Tesla is currently building two Gigafactories: one in Austin, Texas, and one in Grünheide, Germany. The German unit was expected to start production in July but may have to postpone it due to Tesla's issues with the German bureaucracy and the lack of a production version of the 4680 cells.
Ironically, the same Le Point published an article in March 2020 in which Tavares said Tesla investors were taking “a considerable, massive risk” with the company’s valuation at the time. He also said he was not in a position to give them any advice being just an employee of PSA, but he probably already saw what was coming and the role he would have in that.