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Is Renault Trying To Swipe Tesla’s Critical Emissions Credits Cash Cow?

The once-reliable river of emission-credits cash Tesla
TSLA
has used to boost its bottom line is in danger of drying up completely, with Europe’s legacy automakers building their own bridges over it.

A report in Europe today showed the Renault had grown its electric car (EV) sales beyond the point of self-sufficiency, and now had its own EV emissions credits for sale.

That could be a cruel blow to Tesla, which expected $1 billion in emission-credit revenues this year, and more to come.

Without the emission-credit revenues, Tesla would never have been able to claim four consecutive quarters of GAAP profitability this year.

Tesla soaked up $594 million in credit revenues in 2019 and $419 million in 2018, and emissions credits made up around seven percent of its total revenues in Q2 this year.

The world’s third-biggest auto-making alliance, Renault counts Nissan and Mitsubishi among the brands under its control and was the world’s biggest EV maker until the arrival of the Tesla Model 3.

It is pooling its emissions credits with both brands, which gives them huge EV volumes from the Renault Zoe and the Nissan Leaf. So far this year, 11 percent of Renault’s passenger car sales in Europe have been EVs.

According to a report by the European Electric Car Report, Renault now has so much confidence in its ability to meet its EU7 emissions targets that it has thrown open invitations to join its CO2 emissions pool to other auto makers.

In a document published by the European Commission, Renault has given a deadline of November 18 for other auto makers to join its pool, for a negotiated cost, to meet their own emissions targets for 2021.

Renault now joins Swedish automaker Volvo in boasting a CO2 credit surplus to offer to other automakers.

It wasn’t that long ago that the only place European auto makers had to turn to for CO2 credits was Tesla, which took full advantage of them. Today, only Fiat Chrysler Automobiles buys CO2 credits off Tesla, and that arrangement expires at the end of the first quarter next year.

FCA’s last annual report showed it was slated to extend to 2023, but its merger with France’s Groupe PSA (to create Stellantis) means it no longer needs Tesla’s credits.

PSA is the second biggest European EV maker behind Renault, with its e-208 hatch leading the way to an almost 10 percent EV share of its 2.2 million sales projections for 2020.

Stellantis creates a group that includes Peugeot, Citroen, Opel, DS, Fiat, Alfa Romeo, Maserati, Lancia, RAM, Chrysler, Jeep and Dodge.

Europe has tightened up its emissions requirements for automakers this year, with an average fleet industry target of 95 grams of CO2/km, and any automaker who misses will pay a fine of €95 per gram over the target, per vehicle sold, which can quickly add up to billions.

However, struggling automakers can buy credits off other automakers, provided they are far enough under their own targets to share.

It’s similar in America, where California and more than 13 other states demand a mix of electric, plug-in hybrid or fuel-cell vehicles (zero emission vehicles, or ZEVs) be sold alongside traditional models.

Tesla has traditionally been the go-to credit provider, because they sell only zero-emission vehicles and don’t need their own credits to offset combustion-engined cars.

“We don’t manage the business with the assumption that regulatory credits will contribute significantly to the future,” Tesla CFO Zach Kirkhorn said earlier this year.

“I do expect for our credit revenue to double in 2020 relative to 2019. And it’ll continue for some period of time. Eventually this will reduce.”

The most likely shopper for Renault’s credits, according to inside sources, is Mercedes-Benz’s parent company, Daimler, whose EV sales in Europe have been cutting it fine to meet its 2020 CO2 obligations.

Daimler and Renault already have an alliance on engineering and supply, with Renault using the smart hardware for its Twingo city car and Benz using Renault-built engines for its small cars.

It’s not the first major move on emissions credits in Europe this year.

The Volkswagen Group, which balances its small-car emissions with high-horsepower brands like Bentley, Lamborghini and Porsche, brought Chinese EV maker MG into its pool in Europe to counter the looming threat of a second Covid-19 lockdown halting sales.

It has also pulled its own SAIC joint-venture automaker in China, which also has surplus credits for sale, into its own pool.

Tata, which owns Jaguar Land Rover, has the sales of the World Car of the Year-winning I-Pace to offset its Range Rovers and Defenders, while BMW has already declared its fleet of plug-in hybrids would see it comfortably below its target.

While Volkswagen is charging up the EV sales charts in Europe, it only launched its ID.3 in September and it’s Renault that tops the pure EV registrations so far this year.

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