Tesla, Inc. (NASDAQ: TSLA) is selling emissions credit to Fiat Chrysler (NYSE: FCAU) to avoid steep EU fines on carmakers who fail to meet new pollution standards, according to CNN.
The two automakers have formed an “open pool” that allows their fleets to be counted together under new rules that restrict emissions of carbon dioxide, according to documents published the European Union.
Tesla manufacturers solely electric vehicles designed to help reduce emission rates. Tesla already has a line of luxury and affordable electric vehicles such as its Model Y and S, and most popular vehicle, the Model 3.
Along with manufacturing fully electric vehicles, Tesla also produces solar panels and battery storage for homes, businesses, and even large-scale projects for designated areas.
The new rules state that the auto industry needs to cut CO2 emissions of vehicles sold in Europe by 25% to meet the aggressive caps by 2021, according to UBS. UBS estimates that the new rules will reduce EU carmaker profits by EUR 7.4 Billion (USD 8.3 Billion) combined.
UBS noted last week that Fiat Chrysler was an automaker with the “highest risk of not meeting the target.”
“Fiat Chrysler is facing the biggest challenges to comply with CO2 targets due to a period of under-investment in electrification,” the UBS analysts wrote, adding that it’s “starting almost from scratch.”
“The whole point of a CO2 credit market is to leverage the most cost-effective ways to reduce overall greenhouse gas emissions in the market,” said Fiat Chrysler in a statement.
Other automakers such as Toyota Motor (NYSE: TM) and Mazda Motor (OTC: MZDAF) have also formed pools to help reduce emission rates.
European automakers such as Volkswagen (OTC: VLKAF) have run into problems with emission rates. Volkswagen and its subsidiary Audi (OTC: AUDVF) were fined EUR 800 Million (USD 926 Million) last year over the Company’s diesel emission scandal.
Volkswagen accepted the fine and admitted that it cheated the software to make it seem like vehicles compiled with clean air regulations, when in fact they did not. Volkswagen ran into a previous scandal back in 2015, which resulted in billions of dollars in fines.