Volkswagen’s joint venture with China’s oldest automaker will buy green credits from electric car maker Tesla to comply with local environmental regulations, according to a Reuters report. Volkswagen Group has a long-standing business in China with state-owned FAW, China’s third-largest automaker, which has made Volkswagen and Audi passenger cars in the country since 1991. FAW was founded during Chairman Mao’s industrialization campaign. Zedong in the 1950s, and still produces limousines for the leaders of the Chinese Communist Party.
According to the Reuters report, it was unclear how many FAW-Volkswagen credits it would buy from Tesla, but the joint venture’s offer was around 3,000 yuan ($ 457) per credit, more than prices in previous years. Credit trading generally only occurs between companies that are affiliated, according to the report, while Tesla TSLA, -0.12%, and Volkswagen VOW, -0.84% are staunch rivals. Plus: Audi is betting on the luxury market in a new electric vehicle startup with China’s oldest automaker. China is the world’s largest auto market and uses a credit system to keep automakers in line with sustainability goals. Building less environmentally friendly cars, such as those powered by internal combustion engines, consumes these credits, which can be bought and sold between companies in a system similar to cap and trade. A deal to buy Tesla credits at a premium represents Volkswagen raising the margins of one of its fiercest rivals in the electric vehicle space. The global automobile giant Volkswagen Group owns brands such as Audi, Porsche, Bentley, Bugatti and Lamborghini. Last year, the company surpassed Tesla to become the most dominant electric vehicle group in Europe, where it controls nearly 25% of this key market. While EVs account for a growing part of its European business, Volkswagen and its joint ventures continue to rely heavily on internal combustion engine vehicles for sales in China. More: Forget Nio and XPeng. This company and Tesla will be the top two electric vehicles by 2025, says UBS. According to the Swiss bank UBS, Tesla and Volkswagen will be the two world leaders in electric vehicle sales in the next two years. Analysts expect Volkswagen to catch up with Tesla in terms of total volume of cars sold next year, when the two companies could deliver around 1.2 million cars each. Europe is the world’s largest electric vehicle market behind China, where in January Audi launched a new joint venture with FAW to produce premium all-electric vehicles in northeast China. Along with Western brand companies, China is home to domestic manufacturers, including NIO NIO, + 1.17%, XPeng XPEV, + 0.55%, and BYD 1211, + 7.64%.