Automakers tap Polestar, Volvo, and Tesla to avoid EU CO2 fines

As the 2025 EU emissions targets draw closer, automakers hastily form alliances and pool carbon credits to evade potentially billions in fines.

Electric vehicle pioneers like Tesla and Polestar are taking advantage of their zero-emission lineups by selling surplus credits to manufacturers. Hesitating carmakers are allowed to join until the beginning of February.

Under the EU’s Corporate Average Fuel Economy (CAFE) regulations, automakers must cut their fleet emissions by 15% compared to 2021. With the EV market stagnating at just under 14% in Europe, far from the 20% needed, pooling seems to become a critical safety net for traditional automakers.

Key alliances forming

The prospect of CO2 fines has polarized the industry, with BMW CEO Oliver Zipse stating the timely formulated goals have provided enough leeway for preparation.

At the same time, Renault CEO Luca de Meo blamed the cooldown of EV adoption, warning that a 25 billion euro cost would be better invested in innovation to battle these emissions. The goals must be met by the end of the year to avoid penalties.

Next to EV sales, pooling with zero- or low-emission cars is a less costly way out if targets remain unmet. According to an EU document, Stellantis, Toyota, Ford, Mazda, and Subaru have struck deals to join a pool led by Tesla.

Meanwhile, Mercedes-Benz has grouped with Polestar, Volvo Cars, and Smart, brands backed by China’s Geely, one of Mercedes’ largest shareholders, to bridge its emissions gap.

Carbon credit economics

Tesla and Polestar stand to benefit significantly. Last year, Tesla’s carbon credit sales contributed nearly 3% of its $72 billion revenue.

Selling credits to Mercedes represents a similar opportunity for Polestar. Volvo Cars, Polestar’s minority owner, declined to disclose financial details but confirmed a ‘significant’ CO2 surplus.

The economics of pooling are simple: one full-electric car can offset emissions from three to four internal combustion vehicles. Automakers unable to meet their fleet targets face penalties of €95 per gram of CO2 over the limit per vehicle – a potential €15 billion collective fine, according to estimates by the European Automobile Manufacturers Association (ACEA).

Clock is ticking

ACEA has called for relief on the 2025 targets, citing the slow EV adoption and market challenges. Italy and other governments have echoed these concerns, joining the lobby to suspend fines.

Stellantis’ head of European operations, Jean-Philippe Imparato, estimates EV sales need to rise from 12% to 21% of its fleet to avoid penalties. Stellantis has committed to close 2025 without fines, leveraging pooling to optimize resources while advancing EV technologies.

Notably absent from these pooling agreements are Volkswagen and Renault. Europe’s largest automaker, Volkswagen, has described the 2025 targets as “particularly challenging” but has yet to decide on joining a pool.

Renault, meanwhile, has resisted pooling, with executives expressing concerns over funding competitors. The clock is ticking for these carmakers, with pooling applications to join either the Tesla or the Geely Group closing in early February.

Meanwhile, the NGO Transport & Environment has issued a study and report that manufacturers can adhere to EU regulations without pooling if they do their homework. Wait and see.