Final hours! Save up to 55% OFF InvestingProCLAIM SALE

Fiat Will Effectively Fund Tesla’s German Factory, Baird Says

Published 01/09/2020, 11:09 AM
Updated 01/09/2020, 03:34 PM
© Reuters.  Fiat Will Effectively Fund Tesla’s German Factory, Baird Says
TSLA
-
VOWG_p
-

(Bloomberg) -- Fiat Chrysler Automobiles NV’s deal to pool its fleet with Tesla (NASDAQ:TSLA) Inc. to comply with stricter emissions rules in Europe is in effect funding the electric-car maker’s upcoming Germany factory, according to Robert W. Baird & Co.

The Italian-American automaker reached an agreement with Tesla last spring that could cost Fiat Chrysler an estimated 1.8 billion ($2 billion) through 2023. That breaks out to about $150 million to $200 million per quarter and will pad Tesla’s profit margins starting in the first three months of this year, according to Baird analyst Ben Kallo.

“While we acknowledge investors may want to strip out credits in evaluating operational execution, we do note the credits effectively fund Tesla’s European factory,” Kallo wrote in a report Thursday. While he cut his rating on Tesla to the equivalent of a hold, from a buy, the analyst raised his price target to $525, from $355.

Representatives for Fiat Chrysler and Tesla didn’t immediately respond to a request for comment.

Chief Executive Officer Elon Musk announced in November that Tesla planned to build a plant outside Berlin. The facility is expected to produce Model 3 sedans and Model Y crossovers starting in 2021.

Fiat Chrysler is going to launch a new version of its Fiat 500 battery-powered vehicle in Europe this year, along with plug-in hybrid versions of its Jeep Compass, Renegade and Wrangler models. That, combined with the Tesla credits, should make the company compliant with Europe’s emissions rules, CEO Mike Manley told analysts in July.

While Fiat Chrysler would otherwise struggle to meet new carbon-dioxide emissions standards in Europe, the so-called open-pool option available in the European Union allows automakers to group their fleets together to meet targets. Compliance has gotten harder for automakers as consumers have shifted toward gasoline cars, which emit comparatively more CO2, following Volkswagen (DE:VOWG_p) AG’s diesel-emissions scandal that first erupted in 2015.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.