Volkswagen To Buy Credits From Tesla In China To Comply With Environmental Rules

A Volkswagen joint venture in China has agreed to buy green car credits from Tesla to help meet local environmental rules, three people briefed on the matter told Reuters. The deal, the first of its kind to be reported between the two companies in China, highlights the scale of the task Volkswagen faces in transforming its huge petrol carmaking business into a leader in electric vehicles to rival Tesla. Shares in Volkswagen, the world’s second-biggest automaker, have soared this year as investors warm to its plans to go electric. But in China, and elsewhere, the German company is still heavily reliant on traditional combustion-engine vehicles.

China, the world’s biggest auto market where over 25 million vehicles were sold last year, runs a credit system that encourages automakers to work towards a cleaner future by, for example, improving fuel efficiency or making more electric cars. Manufacturers are awarded green credits that can be offset against negative credits for producing more polluting vehicles. They can also buy green credits to ensure compliance with overall targets, though trade is usually between affiliated companies that share a major stakeholder.

To help meet increasingly tough targets, Volkswagen’s joint venture with state-owned Chinese automaker FAW, or FAW-Volkswagen, has agreed to buy credits from Tesla, the sources said, declining to be named as the talks were private. Volkswagen declined to comment on the deal. It said in a statement it was “strategically targeting to be self-compliant” with rules in China, but that if required it would buy credits. Tesla did not respond to requests for comment.