Honda Motor Company, Inc. officially joins Fiat Chrysler in pooling the regulatory credits with Tesla in Europe. The tough European regulations now require an average of 95 grams of CO2 emissions per kilometer per car that Honda has failed to achieve.
This situation has opened another revenue stream for Tesla which is estimated to be worth hundreds of millions of dollars stretching the next few years. The financial details of the Honda-Tesla credits pooling have not been disclosed yet. The Fiat Chrysler deal alone has contributed $1.2 billion to Tesla profits this year.
Tesla is eating their competitors’ lunch, and they’re making them pay for it. That’s a pretty cool trick.
Steve Westly, early Tesla Investor and former board member.
Actually, the situation has quickly become pretty interesting in the automotive manufacturing industry. The companies that denied Elon Musk’s vision for a sustainable future — now they have to pay for it heavily.
Early Tesla investor and former board member of the company Steve Westly while talking to CNBC described the ZEV credits phenomenon as highlighted in the pull-quote above.
Back to Honda now:
The low number of sales of the Japanese automaker’s Honda e EV was also a factor in not meeting the greenhouse emissions responsibility set forth by the European Union.
According to a Honda USA press-release from August, the giant automotive company is aiming to reduce its overall fleet CO2 emissions to 50% by the year 2050. It further states:
As part of our goal to achieve a reduction in CO2 emissions that contribute to climate change we are targeting a 50 percent reduction in our total CO2 footprint by 2050, compared to year 2000 levels. This challenge is the foundation for our investment in the technologies we are applying to our vehicles today, and those we are developing for tomorrow.
Today, Honda holds the distinction of being America’s most fuel-efficient, low-emissions automaker, according to the U.S. EPA. That means our existing vehicles have the lowest CO2 emissions of any full-line automaker. Electrification is one of the critical technologies we are deploying to further reduce greenhouse gas emissions.
Executive Vice President American Honda Rick Schostek
How much can Tesla make from Honda buying regulatory credits?
An estimated answer to this question can be calculated by taking the case of Fiat Chrysler Automotive’s (FCA) current share of ZEV credits in Tesla’s pool. The Math on this is done by Steven Mark Ryan from the YouTube channel “Solving The Money Problem”.
Fiat Chrysler sells around 1 million vehicles in Europe each year and with almost $1 billion dollars of payment to Tesla for the regulatory credits, FCA pays around $1,000 for each vehicle sold.
So taking that into account, Honda sells more than 100,000 cars in Europe annually, multiplying that with $1,000 gives us the ballpark figure of $100M+ per year.
Honda however is ceasing the sale of its diesel-powered vehicles in Europe in 2021 as they announced last year. This might lower the number of zero-emission vehicles (ZEV) credits Honda needs to buy each year until the automaker reaches its goal of a fully electric lineup in Europe — which by the way is set for 2025.
Not to forget Tesla is already building its next-gen Gigafactory in Berlin, Germany which will crank out Tesla Model Y SUVs unlike any car manufacturing plant on the planet right now — thanks to the giant Giga Casting machines.
By 2025 Tesla Europe will be a really hard nut to crack, even for the German and Japanese automakers combined.
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Sources: Bloomberg, Reuters.
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