Volkswagen joint venture in China decides to buy green car credits from Tesla

A Volkswagen joint venture in China has decided to buy green car credits from Tesla to enable it to meet local environmental rules, three people briefed on the matter told Reuters.

It is the first deal of its kind to be reported between the two companies in China. The deal underscores the scale of the task Volkswagen has to face for transforming its huge petrol car-making business into a leader in electric vehicles to rival Tesla.

The world’s second-biggest automaker Volkswagen’s shares increased this year as investors have started accepting plans to go electric. But the German company is still heavily reliant on traditional combustion-engine vehicles in China and other countries.

The world’s biggest auto market, China, sold over 25 million vehicles last year. It runs a credit system that motivates 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 compensated against negative credits for producing more polluting vehicles. Green credits can also be brought to ensure keeping with overall targets, though trade is usually between affiliated companies that share a crucial stakeholder.

Volkswagen’s joint venture with state-owned Chinese automaker FAW or FAW-Volkswagen has agreed to buy credits from Tesla to help meet increasingly tough targets, the sources said, declining to be named as the talks were private.

Volkswagen said in a statement that it was “strategically targeting to be self-compliant” with rules in China and if required it would buy credits but it declined to comment on the deal. 

Tesla did not respond to requests for comment.

Last year, FAW-Volkswagen sold 2.16 million cars. According to data from China’s Ministry of Industry and Information Technology, the business and another Volkswagen venture with SAIC Motor were among the most negative credit-generating automakers in China in 2019.