Fiat Chrysler Automobiles (FCA) makes a new strategic move to help in its shift towards electrification, this time proposing a 50-50 merger with Renault that would make the joint venture the third largest automaker in the world by around 8.7 million annual sales.
The primary motivation for the deal is to divide the capital injection as both companies have committed themselves to transfers, and the FCA has estimated a $ 5.6 billion cost savings as a result of the merger. This move comes at the heels of a Tesla emission credit agreement that is estimated to cost the Italian machine over $ 1 billion, and this expenditure does not appear to be affected by the short-term merger.
Strict EU EU emission rules led Tesla and FCA to enter into a car parking agreement in April. According to the agreement, FCA counts Tesla's zero emission fleet in its figures, allowing the company to lower its average CO2 output per vehicle. Both parties benefit greatly from the deal when FCA avoids EU penalties and Tesla receives monetary compensation. It also gives FCA extra time to work in its 5-year plan to move away from diesel and produce only electric and hybrid car models.
Fiat-Chrysler's CEO Mike Manley previously estimated that 80% of FCA's CO2 compliance would come from buying Tesla credits by 2020 before falling to around 1[ads1]5 percent in 2021. It's not quite clear how Tesla's emissions agreement with FCA will be affected by a merger. But as time is of essence, very little can be changed, if at all. "If this merger continues, the creation of a new company may require more than a year," Manley said of the Renault deal. In that case, FCA will still need to meet EU regulatory requirements in the meantime.
Beginning in 2020, 95% of emissions in the automotive industry in the EU must be on average below 95g CO2 per kilometer, ie fuel efficiency of about 57 mpg for combustion vehicles. A Fiat-Renault merger would go well past this deadline, according to Manley, meaning the FCA will continue to bear the cost burden of the deal with Tesla alone and on its original terms.
In 2021, the entire EU car fleet must be compatible, and the penalty can lead to financial destruction for companies that fail to meet the stringent requirements. FCA has been slower than its industry peers to adopt an electrification plan and needed to buy more time to execute its strategy. The company's efforts to reduce emissions will probably not manifest in enough production wagons to avoid EU fines within the impending deadline, leading to the agreement with Tesla and representing another factor that motivates the merger with Renault.
The terms of the FCA's proposed merger with Renault would give both car manufacturers the same representation on the overall board, and the shareholders would share the shares equally. FCA further stated that there would be no closure of the facility from the deal, even though layoffs remain a matter. Tesla is, of course, quite familiar with such changes as are necessary to completely abolish a century-old petrol-dominated industry for the benefit of one who is more environmentally sustainable.