Tesla and Chinese car manufacturers could gain a major advantage from new European Union (EU) emissions regulations, while European automakers struggle to keep up. With strict carbon reduction targets now in place, carmakers in Europe face hefty fines if they do not meet emission standards.
One way to avoid these penalties is by increasing production of zero-emission electric vehicles or reducing the number of traditional gas-powered cars they make. However, many automakers are falling short of their targets. As an alternative, they can buy emissions credits from companies that specialize in Electric Vehicles such as Tesla and China’s Geely, which owns Volvo and Polestar.
This system, known as POOLING, has raised concerns in countries like France and Germany, where major car brands are struggling to compete. French Minister for European Affairs, Benjamin Haddad, warned that allowing billions to flow to Chinese manufacturers or Tesla, whose CEO, Elon Musk, has openly criticized EU regulations, would be a serious political mistake.
European automakers, including Volkswagen, MercedesBenz, and Stellantis, are feeling the pressure. While they are producing more EVs than ever, demand for electric cars has slowed. In 2021, Stellantis bought around USD2 billion in emission credits from Tesla, a strategy that helped avoid even bigger fines. Now, with tougher rules, the industry faces even higher potential penalties. Renault CEO Luca de Meo estimates that non-compliance could cost European carmakers over USD15 billion, with Volkswagen alone risking up to USD1.6 billion in fines.
For Tesla, this situation presents a financial windfall. The company made nearly USD1.8 billion from selling carbon credits in 2023, with earnings doubling to USD2.8 billion last year. Analysts at UBS predict Tesla could earn more than USD1 billion in emissions credit sales under the new EU regulations.
Meanwhile, European automakers say that the European Union's ambitious Green Deal, designed to cut emissions by 55 percent by 2030, needs to be reassessed. They claim that economic disruptions caused by COVID-19, supply chain issues, and the energy crisis following Russia’s invasion of Ukraine weren’t considered when the plan was first introduced in 2020.
Despite these concerns, regulators are firm on keeping the emissions reduction plan on track. The EU still aims to ban new gas-powered cars by 2035, forcing carmakers to either adapt or pay the price.