@Artful Dodger
@Fact Checking
@generalenthu
This post is an attempt to evaluate the impacts of a potential FCA-PSA-Tesla CO2 EU emission pool for 2020-2023. It supplements a previous post examining the current FCA-Tesla pool:
Tesla, TSLA & the Investment World: the 2019 Investors' Roundtable
Background:
Strict new CO2 emission limits have been imposed on new cars sold in the EU starting in 2020. Any manufacturers which sell in the EU are allowed to “pool” their fleets to reduce the pool average emissions and penalties. Fiat-Chrysler Automotive (FCA) and Tesla Inc. have formed such a pool with the implication that FCA will reimburse Tesla for participating.
In October 2019, a merger between FCA and PSA Groupe (Peugeot, Citroën, DS, Opel/Vauxhall) was announced. Further reports indicate all automakers in both groups will be retained.
PSA-FCA Merger Will Retain All 13 Automakers In The Lineup
The merger has apparently won union approval.
PSA unions approve FCA merger but remain 'vigilant' on plant implications
This assessment examines the implications of the FCA-Tesla emissions pool being expanded to include PSA. It uses similar assumption, methodology and references to the previous FCA-Tesla pool assessment, but these are repeated to make this a stand-alone document.
TL;DR:
Assuming the FCA-PSA pays Tesla 50% of the penalty-reduction value of the Tesla ZEVs sold in the EU (suggested by @Fact Checking), Table 1 shows the payment indicated by this assessment. Because of the large size of the combined FCA-PSA pool, it would take an extremely large number of Teslas (more than 500,000) to completely eliminate the FCA-PSA EU CO2 emission penalty.
View attachment 479102
The rest of the post documents the methodology used.
Major assumptions and findings:
The FCA-PSA-Tesla Pool emission target is 91.2 g/km. This is a weighted average of the 2018 FCA and PSA targets (weighted by the number of 2018 new vehicles sold by each group, Ref. 1).
The EU emission penalty is 95 €/(g/km)/vehicle (Ref.1)
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Table 2 Column A shows the average CO2 emissions for the ICE portion of the pool. These are weighted averages of 2018 FCA and PSA values (weighted by the number of 2018 new vehicles sold by each group, Ref. 1) and are assumed to be constant through 2023, except for 2020 due to Phase-In rules (described below).
Table 2 Column B shows the number of ICE vehicles in the pool. These are the 2018 combined FCA and PSA numbers (Ref. 1 and 4) and are assumed to be constant through 2023, except for 2020 due to Phase-In rules. Note that the ICE component of the pools has increased by a factor of 4.5 relative to the FCA(only)-Tesla pool.
Table 2 Column C shows the Super-Credit factors. These allow a limited number of low-emission vehicles to have an exaggerated beneficial effect on emission penalty calculations (Ref. 1). The Super-Credit rules are described below.
Table 2 Column D shows the computed maximum number of ZEVs that can have Super-Credit status.
Table 2 Column E shows the computed penalty-reduction value per vehicle of the Super-Credit ZEVs.
Table 2 Column F shows the computed number of ZEVs (in addition to the Super-Credit ZEVs) needed to eliminate the entire emission penalty.
Table 2 Column G shows the computed penalty-reduction value per vehicle for the non-Super-Credit ZEVs.
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Figure 1 captures the penalty situation graphically. The initial steeper slopes to the curves are due to the Super-Credit effect and the break in the slope occurs when their scope limitations occur. The downward shift of the 2020 data is due to the Phase-In rules.
Several things are immediately obvious:
1) The Super-Credit ZEVs have a very high value in penalty reduction (12,100€ - 18,600€ per vehicle). They apply to the first 107,000-164,000 ZEVs.
2) The non-Super-Credit ZEV’s still have 9000€/ZEV of penalty-reduction value and the total penalty is such that there is room for lots of them (450,000 to 870,000) before the penalty is completely eliminated.
When compared to the previous FCA(only)-Tesla pool assessment, the effect of the much larger ICE pool component (and much larger potential penalty) is clear. Many more ZEVs are eligible for Super-Credit status, and many more in excess of those are required to completely retire the emissions penalty. Note the change in the ordinate scale on Figure 1.
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Table 3 tabulates the penalty reduction values as a function of ZEVs added to the fleet.
Implications for Tesla:
There has been speculation on the structure of FCA’s (or FCA-PSA’s) payment to Tesla for the inclusion of their ZEVs into the pool, but specifics seem lacking. As an example, the value of each Tesla could be thought of as a negotiated fraction of its penalty-reduction value (a “bounty”), paid by FCA-PSA. @Fact Checking suggested 50% for this bounty, and the results of that assumption are shown in Table 1. Table 1 is simply Table 3 multiplied by the bounty; any bounty value can be applied.
This assessment assumed negligible FCA-PSA ZEV contribution (consistent with Ref. 1 2018 data). If in the 2020-2023 timeframe FCA-PSA introduces (and sells) significant ZEVs of their own, these would presumably be the first placed in the Super-Credit category. These can simply be subtracted from Table 2 Column D, with the remainder available for Tesla. That remainder multiplied by the appropriate value in Column E will give the remaining Tesla Super-Credit penalty reduction. If FCA ZEV sales exceed the maximum available Super-Credits, the remaining FCA non-Super-Credit ZEVs can be subtracted from Table 2 Column F and remainder then multiplied by the appropriate value in Column G to get the remaining Tesla non-Super-Credit penalty reduction.
Presumably, penalties would by assessed by the EU in the year following their computation (e.g., 2020 emission exceedances would be penalized in 2021). The timing of the payments from FCA-PSA to Tesla (and subsequently availability for Tesla financial reporting) is unknown. It is possible that for each ZEV sale, Tesla would receive an immediate bounty. It is also possible that the lump Tesla bounty payments would go out at the same time as the penalty payment to the EU (a year after the sales).
Details
Super-Credits (Ref. 1):
Super-credits allow manufacturers to count their initial “low-emission vehicles” (<50 g CO2/km) as “multiple vehicles”. FCA-PSA have essentially no low-emission vehicles in its fleet, so all Super-Credits go to the Teslas.
Super-credit multipliers: 2020: 2.0, 2021: 1.67, 2022: 1.33, 2023: 1.0. Super-Credits are eliminated after 2023.
Maximum scope of super-credits: 7.5 g/km CO2 of effective emission reduction
2020 Phase-In (Ref. 1):
The wording associated with the 2020 phase-in is a bit ambiguous. Ref. 1 Section 4: “…the provision allows manufacturers to base average CO2 emission values on the best-performing 95% of vehicles”. I’m interpreting this to mean the manufacturer can exclude 5% of their worst polluting vehicles from the calculation of their average CO2emissions for 2020 and also exclude them from the total fleet count.
Ref. 5 provides an extensive list of independent emissions tests. Some of the worst scores for 2018 Fiat are the petrol 500X and Panda, for 2018 Opel are the petrol Corsa and Crossland X and for Peugeot are the petrol 2008 and 3008 models, all in the range of 175-200 g/km CO2. According to Ref. 4, more than 950,000 of these combined models were sold in Europe in 2018. Although the breakdown between petrol and diesel are not provided, it is likely that at least 160,000 (5% of the fleet) of these are petrol. It is therefore assumed that 160,000 vehicles with CO2 emissions of (average) 187 g/km are excluded from the 2020 FCA-PSA fleet. The recomputed fleet size and average emission value are shown in the first row, Column A and B of Table 2.
“Eco-Innovations” (Ref. 1):
“Eco-Innovations” were meant to be incentives to reduce ICE vehicle emissions. They include things like efficient alternators, LED lights and solar roofs and computations are used to translate them into CO2 credits. These could be used to reduce average CO2
emission values up to 7 g/km. Neither FCA nor PSA have any significant Eco-Innovations (Ref 3.).
References:
1) CO2 emissions from new passenger cars in the European Union: Car manufacturers’ performance in 2018 | International Council on Clean Transportation
2) European vehicle market statistics, 2018/2019 | International Council on Clean Transportation
3) Overview and evaluation of eco-innovations in European passenger car CO2 standards | International Council on Clean Transportation
4) Fiat European sales figures
5) EQUA Carbon Dioxide Index | EQUA INDEX | Independent real world driving data
Whoa.. these numbers are mind boggling. I see a free Berlin GF there and the investment timeline aligns really well with the bounty coming in.
Thanks for updating the model.
While I think the bounty may be higher than 50%, the outer years probably will see some decline as they will start pumping hybrids or start making more compliance cars based some a platform like MEB. VW is being smart here trying to sell a platform when all the automakers need one. That might be the android to Tesla's apple.
That said, your table stops at 240k, and I think Tesla can go past that in 2021, as Shanghai hits it's stride and Fremont continues to ramp with model Y alongside GF1. And may be a trickle from Berlin as well.
Can't wait for Q1 to see how much detail we'll start getting here. Also good news on the union approvals from the PSA side.
