(Bloomberg) -- Fiat Chrysler Automobiles NV is pooling its fleet with Tesla Inc. to comply with stricter European Union rules on carbon-dioxide emissions, in a deal that's likely to pay the U.S. electric-car leader hundreds of millions of dollars.
Tightening EU regulations that kick in next year could cost Fiat 2 billion euros ($2.2 billion) in potential fines in each of 2020 and 2021, according to Jefferies analyst Philippe Houchois. In a statement, Fiat said cooperating with Tesla will give it flexibility to find “the lowest-cost approach.”
The Italian-American carmaker is behind on meeting the new standard, and the so-called open pool option available at the EU allows automakers to group their fleets together to meet the targets. Payments to Tesla, whose electric cars don't produce CO2 emissions, may amount to over 500 million euros, according to Jefferies. Compliance has gotten harder for automakers with a move by consumers toward gasoline cars, which emit comparatively more CO2, since Volkswagen's 2015 diesel-cheating scandal.
Read this: Europe's Rising Car Emissions Box BMW, Daimler Into Tight Corner
Fiat shares climed 1.5 percent at 10:15 a.m. in Milan. Earlier, the company declined to comment on a Financial Times report Sunday that it's paying Tesla hundreds of millions of euros for the arrangement.
“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. “The purchase pool provides flexibility to deliver products our customers are willing to buy while managing compliance with the lowest cost approach.”
Read more: EU Seeks to Spur Electric Vehicles With Tougher CO2 Limits
A notification on the European Commission website shows Fiat formed an open pool with Tesla on February 25. Mazda Motor Corp and Toyota Motor Corp are also forming a pool. The EU's target for average new-car emissions of CO2 will decline to 95 grams from 130 grams per kilometer by 2021.
Fiat is readying some electrified vehicles, including an upcoming plug-in hybrid Jeep and showing a battery-powered Fiat Centoventi prototype last month at the Geneva car show. The investment strain of complying with new emissions standards has prompted Fiat to explore a partnership with Peugeot-maker PSA Group to collaborate on a “‘super platform,” people familiar with the talks said this month.
--With assistance from John Martens and Tommaso Ebhardt.
To contact the reporters on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net;Daniele Lepido in Milan at dlepido1@bloomberg.net
To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Elisabeth Behrmann, Maria Ermakova
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