The Italian-American automaker has agreed to pool its European new vehicle emissions with Tesla in order to avoid potential fines in the billions of the euros.
With EU emissions regulations tightening up in the next few years, some automakers have begun to embrace partial or full electrification as a way of avoid hefty fines.
Although Fiat Chrysler (FCA) has announced plans to launch make Maserati a largely electric brand, add plug-in hybrids to its Jeep range, and make the next-generation Fiat 500 fully electric, none of these moves will help much in the short term.
EU regulations allow automakers to pool together emissions from all their various brands. This way, more efficient Volkswagen, Seat and Skoda vehicles help to offset thirstier vehicles made by Audi, Porsche, Bentley, Lamborghini and Bugatti brands.
The regulations also permit emission pools to be formed between automakers who don't fall within the same corporate umbrella.
In February, the Tesla invited other automakers to join its EU emissions pool. The only manufacturer to take up the offer was Fiat Chrysler (FCA).
It's believed FCA has paid Tesla several hundred million euros for the privilege, but neither automaker has confirmed the commercial terms of the deal.
The EU's target for average new car emissions is 95 grams of CO2 per kilometre by 2021, down from the present target of 130g/km.
While the fee seems quite high, the penalty for failing to meet the new figure will be €95 ($150) per gram over the target for every single vehicle sold by the company in the EU during the calendar year.
In 2018 FCA's average fleet emissions were 120.5g/km. According to estimates published by The Financial Times similar figures could cost the company about €2.0 billion ($3.2 billion) in fines in 2021.
To put that in context, the company's global profit in 2018 was €3.6 billion ($5.7 billion).
“The whole point of a CO2 credit market is to leverage the most cost-effective ways to reduce overall greenhouse gas emissions in the market,” Fiat Chrysler said in a statement to Automotive News.
“The purchase pool provides flexibility to deliver products our customers are willing to buy while managing compliance with the lowest cost approach.”
Tesla continues to sell Californian emissions credit to other automakers to bolster its bottom line. According to The Financial Times, Tesla sold $103.4 million ($145.3 million) credits in 2018 and $279.7 million ($393 million) in 2017.