Fiat Chrysler will effectively fund Tesla’s German factory, investment bank says

Fiat Chrysler Automobile’s deal to pool its fleet with Tesla to comply with stricter emissions rules in Europe is in effect funding the electric-car maker’s upcoming Germany factory, according to a U.S. investment bank.

FCA reached an agreement with Tesla last spring that could cost FCA 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 Ben Kallo, a Robert W. Baird & Co. analyst.

“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.