The FAW-Volkswagen joint venture in China will buy credits from Tesla in order to meet local environmental regulations.
Like some other markets, China runs a credit system designed to encourage car manufacturers to make more fuel-efficient, or electrified, vehicles. As noted by Reuters, carmakers receive green credits that they can use to offset against negative credits for higher-polluting vehicles. Companies can also buy green credits to comply with emissions rules and that’s exactly what FAW-Volkswagen has done.
Sources haven’t made it clear just how many green credits FAW-Volkswagen is purchasing from Tesla but they say the automaker will buy them for approximately 3,000 yuan ($457) each. Neither the German car manufacturer nor its Chinese partner have commented on the deal, simply stating that it is “strategically targeting to be self-compliant” with rules in China.
Reuters reports that in 2019, FAW-Volkswagen and SAIC Volkswagen were among the most negative credit-generating automakers in the country. Throughout 2020, the German automaker significantly increased its range of electric vehicles in China and will continue to do so this year as it plans to introduce no less than five ID-branded electric vehicles through its various local joint ventures.
Tesla makes quite a lot of money by selling regulatory credits to rival manufacturers in the U.S. every year. The EV automaker has made no less than $3.3 billion through the sale of regulatory credits over the last three years, of which $1.6 billion was earned in 2020 alone.