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Stellantis Will Stop Buying EU Tax Credits From Tesla

By John Rosevear - May 5, 2021 at 2:36PM

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The move could cost Tesla $240 million in future income. Here's the story.

Stellantis (STLA 0.56%), the global auto giant formed from the merger of Fiat Chrysler Automobiles (FCA) with French automaker PSA, said that it will no longer buy European environmental credits from electric-car maker Tesla (TSLA -1.73%).

The move is expected to save Stellantis about 300 million euros ($360 million). About two-thirds of that would have gone to Tesla, Stellantis's Chief Financial Officer Richard Palmer said. 

The European Union requires automakers to build a minimum percentage of zero-emissions vehicles; those that build more than required can sell "credits" to other automakers that fall short. The system is similar to one used in California and other U.S. states. Tesla, which only makes electric vehicles, has been able to generate significant profit from the sale of these credits to other automakers. 

A European-market Jeep Wrangler on display in a neutral space.

Fiat Chrysler needed Tesla's credits to offset its European sales of profitable but thirsty Jeeps. But PSA's electrified vehicles mean that post-merger Stellantis no longer needs Tesla's credits to comply with EU regulations. Image source: Stellantis.

FCA was one of Tesla's biggest customers. The former Italian-American automaker has spent roughly 2 billion euros, or $2.4 billion, to buy European and U.S. credits from Tesla since 2019. But that cash transfer will soon end, thanks to the electric-vehicle technology that PSA, the parent company of French brands Peugeot and Citroën and Germany's Opel, brought to the merger. 

It was not immediately clear how Stellantis's decision to end the deal will affect Tesla. But auto investors should note that without the income it generated from selling tax credits to Stellantis and others, Tesla would have posted losses in each of the six most recent quarters, including the first quarter of 2021.

John Rosevear has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

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