A deal has already been made.
Volkswagen continues to face some hurdles as it transitions from combustion-engined to all-electric vehicles. It's definitely off to a great start with the VW ID.4, now arriving in showrooms across the US, but it still needs to meet environmental rules in every country it does business in. One of the most important countries is China and, unfortunately, VW's green credentials are lagging behind there. Enter Tesla.
According to Reuters, VW's joint venture in the world's largest automotive market has struck a deal to purchase green car credits from Tesla in order to meet local requirements. This isn't the first time (nor likely the last) Tesla has sold green credits to a rival brand.
Automakers receive these green credits to help offset the negative credits generated by combustion-engined vehicles with higher pollution rates. But automakers can also legally purchase green credits from others who have a sufficient stockpile. In the US, Tesla has previously sold credits to FCA, now called Stellantis. This is highly profitable for Tesla, which sold $1.58 billion worth of credits last year alone. But this is the first time it's conducting a credit deal in China.
Basically, VW is helping to subsidize what'll perhaps be its biggest future rival. This year alone, VW plans to launch five ID-branded models in China. By 2025, the VW Group is aiming for a 30 percent overall reduction in its carbon footprint.
Net-carbon neutrality has a 2050 target. Its goal of selling one million electric vehicles globally by 2025 remains. All told, more than 70 EVs will be launched across all group brands by 2029. As for Tesla, it began building Model 3s in China in 2019 at its Shanghai Gigafactory and recently added Model Y production there as well.
The Chinese government has made new passenger vehicle battery electrification a priority and automakers are racing to stay ahead of the game. They simply can't afford to miss out. Until carmakers like VW successfully launch more pure battery electrics, Tesla will be standing by ready to make some easy money.