Automakers are turning to carbon credit pooling to meet targets and avoid fines with stricter European Union (EU) emission regulations set for 2025. Electric vehicle (EV) makers like Tesla and Polestar are key players in this strategy, using their fully electric fleets to generate surplus carbon credits.
EU Rules Drive Carbon Credit Market
Under EU rules, automakers must meet strict carbon emission limits for their fleets, with the following rules to adhere:
A report analyzing 2023 data estimates carbon reduction targets for car manufacturers in 2025, considering adjusted plug-in hybrid vehicle emissions and zero- and low-emission vehicle incentives.
- Volkswagen and Ford: Face the largest challenge, requiring around 21% CO₂ reductions.
- Hyundai, Mercedes-Benz, and Toyota: Need reductions exceeding the average of 12%.
- BMW, Kia, Stellantis: Closest to meeting targets, requiring cuts of 9%–11%.
These projections highlight the varying levels of effort needed across the automotive sector to meet emissions goals. To address this concern, carmakers plan to pool carbon emissions credits as auto lobby ACEA pushes for relief on the EU’s 2025 regulations. Some governments, including Italy, have also advocated for suspending 2025 fines.
Companies falling short can pool their emissions with leaders like Tesla, buying credits to reduce their overall carbon averages. This allows manufacturers to avoid penalties that could total hundreds of millions of euros.
Several automakers, including Stellantis, Toyota, Ford, Mazda, and Subaru, are joining Tesla’s emissions pool. Meanwhile, Mercedes has partnered with Polestar, Volvo Cars, and Smart. These alliances highlight a growing reliance on carbon credit trading to bridge the gap between current emissions and regulatory targets.
For instance, Polestar and its partners expect a significant CO₂ surplus this year, with Polestar spokespersons confirming plans to sell credits to Mercedes. Volvo Cars, majority-owned by China’s Geely, also reported over a 40% reduction in global tailpipe emissions since 2018.
The two pools, led by Tesla and Mercedes, remain open to other carmakers, with application deadlines set for February 5 and 7, respectively. These deals are based on 2025 sales figures, but the filing did not disclose the volume of credits involved.
How Much Will It Cost for Automakers?
The stakes are high. EU regulators have warned automakers of fines that could reach €300 million for every missed percentage point of EV sales targets.
- Renault CEO Luca De Meo estimates that the 2025 rules could cost European carmakers €15 billion ($15.6 billion).
To avoid these fines, manufacturers like Stellantis ramp up their EV sales. The group’s European operations chief, Jean-Philippe Imparato, recently outlined plans to increase EVs from 12% to 21% of sales to meet targets.
Pooling with Tesla offers a safety net, ensuring compliance while companies accelerate the transition to electric models.
Tesla’s Carbon Credit Surge: How the EV Giant is Raking in Billions
Tesla’s role in the carbon credit market cannot be overstated. In the third quarter of 2024, Tesla reported $739 million in revenue from carbon credit sales. This far surpasses the $539 million analysts predicted. This marks a 33% year-over-year increase and accounts for 34% of Tesla’s net income for the quarter.
Tesla’s carbon credits are highly profitable, as they can be sold at full margins. Since Tesla started selling these credits in 2009, they’ve become a billion-dollar revenue stream.
- In 2023 alone, Tesla earned $1.79 billion from credit sales, the highest annual figure in its history.
These credits play a critical role in Tesla’s financial performance. They boost profits and provide a competitive edge, as traditional automakers face challenges reducing emissions from EV components like batteries and aluminum.
Tesla Partnerships and Global Impact
While Tesla rarely discloses its carbon credit buyers, industry reports highlight key collaborations. Stellantis, for example, has purchased billions in credits to offset emissions, aligning with its goal of achieving zero emissions by 2038.
China is another key market for Tesla’s carbon credits. Reports suggest that a joint venture between Volkswagen and FAW Group may have purchased credits worth $390 million from Tesla in 2021. Though details remain scarce, these partnerships underline the global importance of Tesla’s credit sales.
Automakers’ Dual Strategy: Carbon Credit Pooling and EV Innovations
Pooling agreements are just one part of the equation to deal with the 2025 EU emission regulations. Automakers are simultaneously investing in new EV technologies to reduce reliance on carbon credits in the long term. For instance, Stellantis has emphasized its focus on innovative electric and low-emission technologies, ensuring compliance while minimizing costs.
Stellantis is adopting a dual-chemistry strategy, offering both lithium-ion nickel manganese cobalt (NMC) and lithium iron phosphate (LFP) battery options. This approach provides customers with greater flexibility and choice in battery cell and pack technologies, aligning with the company’s commitment to diverse and innovative energy solutions.
The EV giant aims to launch 75 battery EV (BEV) models across its 14 iconic brands by 2030, targeting annual sales of 5 million units. From 2025, all new luxury and premium models will be BEVs, while expanding to all European segments by 2026. Supporting this,
Stellantis is investing €30 billion this year in electrification and software, reinforcing its commitment to sustainable mobility and market leadership.
Mercedes-Benz, too, has acknowledged the transformative pace of the automotive industry. In a statement, the company emphasized its commitment to closing the emissions gap through both pooling agreements and internal advancements in EV production.
Mercedes aims to achieve carbon neutrality across its new vehicle fleet by 2039 as part of its “Ambition 2039” plan. The company has operated carbon-neutral production sites since 2022, powered by renewable energy and sustainable practices. By 2030, Mercedes targets EVs to comprise 50% of its sales.
The Bigger Picture
The surge in carbon credit trading reflects broader challenges in the transition to sustainable transportation. Tesla’s success in this space underscores the potential of fully electric fleets to generate both environmental and financial benefits.
As more automakers invest in EVs, the reliance on pooling agreements may diminish. However, until that transition is complete, carbon credits will remain a critical tool for compliance.
The EU’s 2025 emission regulations have intensified the race to reduce automotive carbon footprints. Carbon credits may be a temporary fix, but they provide a crucial bridge toward more sustainable transportation. As the industry evolves, partnerships between traditional and electric automakers highlight the importance of working together.
