Tesla To The Rescue: GM, Fiat Chrysler Admit Buying Regulatory Credits From Musk’s Company

Amidst reports on Tesla’s varying stock price, sales, and competition, the news is that the electric car maker has been making good money by selling greenhouse gas credits to fellow carmakers.

According to filings by General Motors (GM) and Fiat Chrysler Automobiles (FCA) to the state of Delaware, GM's agreement with Tesla for greenhouse gas credits was inked on Feb. 25.

The filings affirmed how established carmakers such as GM and Fiat Chrysler have been relying on Tesla to comply with the United States’ environmental regulations.

Tesla’s home state of California mandates carmakers to sell a certain proportion of zero-emission vehicles in accordance with their overall share in the market.

So, traditional Car companies need credits to balance their production numbers with a fair share of non-polluting vehicles to offset the number of internal combustion vehicles delivered in the U.S. market.

The rule allows manufacturers to purchase credits from competitors like Tesla in case they are not able to sell an adequate number of non-polluting vehicles.

Tesla did not comment.

GM’s long-term goal and Fiat's EU deal with Tesla

According to a Bloomberg report, Tesla has generated almost $2 billion in revenue from the sale of regulatory credits since 2010.

Mike Taylor, president of Houston-based Environmental Credit noted that GM’s plan to buy credits from Tesla might have a long term goal. It can be a hedge for the future in case of a regime change after the 2020 polls.

“This might not be a bad hedge. If a Democrat gets elected in 2020, GM may need the credits and prices may go up,” Taylor said.

The comment by Pat Morrissey, a GM spokesman that the company purchased credits to manage “future regulatory uncertainties” hinted this. GM’s Chevrolet cars are very famous. FCA’s Dodge and Dodge Challenger are popular brands in North American car markets.

Eric Mayne, the spokesman of Fiat Chrysler said it will continue to buy credits until demand catches up with regulatory requirements. It signed the credit purchase deal with Tesla in 2016.

Fiat Chrysler said in April that it also has plans to pool its fleet with that of Tesla to meet the European Union’s requirements.

According to analysts, FCA has an estimated $500 million deal with the Elon Musk-led car company to meet the European region’s regulatory changes.

The deal will allow Fiat Chrysler to count on Tesla’s vehicles as its own fleet and avoid penalties over emissions.

Currently, Tesla’s sales of regulatory credits are limited to the U.S. and California. But emerging opportunities in Europe may bring more car makers to Tesla's fold to buy greenhouse gas credits.

Tesla’s Chief Financial Officer Zachary Kirkhorn is already on record that credit sales will constitute a “meaningful part of Tesla’s business” in the coming years.