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Matt Winkler
Matt Winkler
Articles (118) 

Fiat Chrysler Pooling Its Fleet With Tesla Raises Questions

The companies are attempting to get past new European emissions standards

Save the planet or make more backdoor deals?

In some cases, regulations can certainly help curb environmental degradation, but for the average person reading headlines on the newest global efforts to fight climate change, it’s extremely difficult to determine whether any new regulations are designed to actually help the planet, or if there's something else going on. All the average Joe typically sees is predigested snippets of things like new emissions standards. The details are almost always hidden.

Case in point, a deal between Fiat Chrysler (NYSE:FCAU) and Tesla (NASDAQ:TSLA) to pool their European fleets for the purpose of getting past new European Union emission standards was revealed this week. Full details on the pool have not been disclosed, but estimates out of Jefferies are that it amounts to over half a billion dollars from Fiat Chrysler to Tesla for the right to count its fleet as part of Tesla’s. Tesla cars, of course, are zero-emission vehicles, so pooling the two fleets would lower the average carbon dioxide emissions per mile per car if they are all considered one fleet.

Are you furrowing your brow trying to figure out how exactly this helps battle climate change? Pooling fleets does not reduce emissions. The cars emit what they emit, counted as one fleet or two. All this does is transfer money from one company to another.

One could argue that pools make sense because, like the cap and trade concept, they incentivize a race between companies for lowering emissions. The argument goes that companies behind the emissions curve can buy more time to comply with regulations without paying the full heft of multibillion-dollar fines. Pooling makes low-emission cars more valuable in this way, though artificially in proportion to the arbitrary fines set by bureaucrats.

In this case, Fiat Chrysler would have had to pay a total of $4.4 billion in 2020 and 2021 had it not contracted to pool with Tesla. Sounds logical and it might work, but the issue is a matter of transparency. What is going on under the hood of these car deals?

Take a look at the application submitted to the European Commission for this pool, and there is one major eyebrow-raiser in there. Fiat and Tesla were required to sign a non-disclosure agreement pertaining to their emissions data submitted to the EU Pool Manager. See footnote one. Why an NDA? Is the public not allowed to know about the carbon dioxide emissions of any given company’s fleet? Why not? All that does is cloud the waters that much more as to what is going on with these regulations. If the point of environmental regulations is public safety – what else could they possibly be for – then why the lack of transparency?

We’ve seen cheating on emissions tests before that went on for years, most notably with Volkswagen (XTER:VOW) back in 2015. An emissions pooling scheme without transparency seems dangerous, both to car companies and their investors, and the tighter the regulations, the more incentives that companies have to cheat. The fact Fiat is pooling with a zero-emissions company like Tesla also points to Fiat having emissions substantially over the new limits. The company will probably either have to keep paying Tesla for a while or else radically change current emissions levels, which could be much more expensive to accomplish.

Mazda (MZDAY) and Toyota (NYSE:TM) are also pooling their fleets, according to the application above, and they are much closer to each other in terms of carbon dioxide emissions than Fiat and Tesla are, which couldn’t possibly be farther apart. The deal may be beneficial to both companies in the end, but the way the pool is being set up does raise some questions. Fiat Chrysler investors may want to keep this in the back of their minds.

Disclosure: No positions.

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