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April 8, 2019 1:45 PM, EDT

Fiat to Pool Cars With Tesla to Meet CO2 Reduction Targets

Daniel Acker/Bloomberg News

Fiat Chrysler Automobiles NV is pooling its fleet with Tesla Inc. to comply with stricter European Union rules on carbon dioxide emissions in a deal that is likely to pay the U.S. electric-car leader hundreds of millions of dollars.

Tightening EU regulations that kick in next year could cost Fiat 2 billion euros in potential fines in each of 2020 and 2021, according to Jefferies analyst Philippe Houchois. In a statement, Fiat said cooperating with Tesla will give it flexibility to find “the lowest-cost approach.”

The Italian-American carmaker is behind on meeting the new standard, and the so-called open pool option available at EU allows automakers to group their fleets together to meet the targets. Payments to Tesla, whose electric cars don’t produce CO2 emissions, may amount to more than 500 million euros, according to Jefferies. Compliance has gotten harder for automakers with a move by consumers toward gasoline cars, which emit comparatively more CO2, since Volkswagen’s 2015 diesel-cheating scandal.

The company declined to comment on a Financial Times report April 7 that it is paying Tesla hundreds of millions of euros for the arrangement.

“The whole point of a CO2 credit market is to leverage the most cost-effective ways to reduce overall greenhouse gas emissions in the market,” Fiat Chrysler said in a statement. “The purchase pool provides flexibility to deliver products our customers are willing to buy while managing compliance with the lowest-cost approach.”

A notification on the European Commission website shows Fiat formed an open pool with Tesla on Feb. 25. Mazda Motor Corp and Toyota Motor Corp also are forming a pool. EU’s target for average new-car emissions of CO2 will decline to 95 grams from 130 grams per kilometer by 2021.

Fiat is readying some electrified vehicles, including an upcoming plug-in hybrid Jeep and showing a battery-powered Fiat Centoventi prototype last month at the Geneva car show. The investment strain of complying with new emission standards has prompted Fiat to explore a partnership with Peugeot-maker PSA Group to collaborate on a “‘super platform,” people familiar with the talks said this month.