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: Tesla will sell sustainable credits to Volkswagen in China, according to report

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Volkswagen’s joint venture with China’s oldest car maker will buy green credits from electric-car maker Tesla to meet local environmental rules, according to a report from Reuters.

Volkswagen Group has a longstanding business in China with state-owned FAW, China’s third-largest car maker, which has manufactured Volkswagen and Audi passenger vehicles in the country since 1991. FAW was founded during Chairman Mao Zedong’s industrialization campaign in the 1950s, and still produces limousines for Chinese Communist Party leaders.

According to the report from Reuters, it was unclear how many credits FAW-Volkswagen would buy from Tesla, but the joint venture’s offer was around 3,000 yuan ($457) per credit — higher than prices in previous years. Credit trading usually only happens between companies that are affiliated, according to the report, while Tesla
TSLA,
+0.16%

and Volkswagen
VOW,
-0.84%

are bitter rivals.

Plus: Audi is betting on the luxury market in a new electric-vehicle venture with China’s oldest car maker

China is the world’s largest car market and uses a credit system to keep automobile manufacturers in line with sustainability goals. Building less environmentally friendly cars, like those driven by internal combustion engines, uses up these credits, which can be bought and sold between companies in a system similar to cap and trade.

A deal to buy credits from Tesla at a premium represents Volkswagen buoying the margins of one of its fiercest rivals in the electric-vehicle space.

The global auto giant Volkswagen Group owns brands including Audi, Porsche, Bentley, Bugatti and Lamborghini. In the past year, the company has raced past Tesla to become the most dominant electric-vehicle group in Europe, where it controls almost 25% of this key market. While electric vehicles make up an increasingly large share of its European business, Volkswagen and its joint ventures remain heavily reliant on internal combustion engine vehicles for sales in China.

More: Forget Nio and XPeng. This company and Tesla will be the top two electric-vehicle plays by 2025, says UBS.

According to Swiss bank UBS, Tesla and Volkswagen will be the two global leaders in electric-vehicle sales within the next two years. The analysts expect that Volkswagen will catch up with Tesla in terms of total volume of cars sold as soon as next year, when the two companies could deliver around 1.2 million cars each.

Europe is the world’s largest EV market behind China, where in January, Audi launched a new joint venture with FAW to produce premium, fully electric vehicles in northeastern China. Alongside ventures from Western brands, China is home to domestic manufacturers including NIO
NIO,
+2.74%
,
XPeng
XPEV,
+1.73%

and BYD
1211,
+7.64%
.

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