One Plug, One Future: EU Carmakers Partner with EV Manufacturers

In response to the European Union’s stringent CO₂ emission regulations, several major automakers are forming strategic alliances to avoid substantial fines. Notably, companies like Stellantis, Toyota, Ford, Mazda, and Subaru have proposed collaborations with Tesla, leveraging its zero-emission vehicle credits to meet the EU’s new emission standards. Similarly, Mercedes-Benz has entered into pooling agreements with Volvo and Polestar to balance their fleet emissions.

These partnerships enable manufacturers to collectively meet emission targets by averaging their fleets’ CO₂ outputs, thereby avoiding penalties and promoting the adoption of electric vehicles across Europe.

Let’s understand the background :

Passenger cars and light commercial vehicles (vans) contribute significantly to the EU’s carbon dioxide emissions, around 16% and 3%, respectively. These figures underscore the urgent need to address these emissions, a key driver of climate change.

To help reduce emissions, the EU has a Regulation that sets CO2 emission performance standards for new passenger cars and vans (Regulation (EU) 2019/631

Under Regulation (EU) 2019/631, the EU established specific CO₂ emission targets:

2020 to 2024:

·      Cars: 95 g CO₂/km

·      Vans: 147 g CO₂/km

These targets were based on the New European Driving Cycle (NEDC) test procedure.

2025 to 2034:

·      Cars: 93.6 g CO₂/km (2025-2029) and 49.5 g CO₂/km (2030-2034)

·      Vans: 153.9 g CO₂/km (2025-2029) and 90.6 g CO₂/km (2030-2034)

These targets are based on the Worldwide Harmonized Light Vehicles Test Procedure (WLTP).

From 2035 onwards:

Both cars and vans: 0 g CO₂/km, representing a 100% reduction.

Goal

These measures aim to contribute to the EU’s goal of achieving at least a 55% net reduction in greenhouse gas emissions by 2030 compared to 1990 levels and attaining climate neutrality by 2050, as outlined in the European Climate Law. 

Penalties for not complying

Under the EU’s CO₂ emission performance standards for cars and vans, manufacturers face financial penalties if their fleet exceeds the CO₂ targets set by the regulations. It’s essential to be aware of these penalties, which are outlined as follows:

Excess Emissions Premium:

For each gram of CO₂/km exceeding the target, manufacturers must pay a premium of €95 per vehicle registered.

This penalty applies to every vehicle in the manufacturer’s fleet that fails to meet the target.

Fleet-Wide Compliance:

The CO₂ emission limits apply to the average emissions of the entire fleet of new vehicles registered by a manufacturer within the EU.

If the average exceeds the specified targets, the penalty is calculated based on the number of vehicles in the non-compliant fleet.

Example:

If a manufacturer exceeds the CO₂ target by 2 grams per kilometre and has 1 million vehicles registered, the penalty would be 2 g/km×€95×1,000,000=€190,000,000

Broader Impact

Collaborations with Tesla and Other EV Makers

Tesla has emerged as a key partner for many traditional automakers. Companies such as Stellantis, Toyota, Ford, Mazda, and Subaru are pooling emissions with Tesla, while Mercedes-Benz collaborates with Polestar, Volvo Cars, and Smart. These arrangements enable automakers to purchase carbon credits from fully electric vehicle producers, offsetting their emissions averages and avoiding costly penalties. In 2024, Tesla’s carbon credit sales contributed almost 3% of its $72 billion revenue.

Potential Challenges

Despite the benefits, these collaborations are not without challenges. Some automakers have expressed concerns over becoming too dependent on purchasing credits rather than investing in genuine emission reduction strategies. Additionally, such partnerships may weaken competitive dynamics within the automotive sector by creating reliance on leading EV manufacturers for compliance.

“Without a clear position from the European Commission, the manufacturers are forced to make counterproductive decisions such as purchasing credits from competitors, potential production cuts, etc. This leads to  weakening the European industry,” Renault said on January 8. 

Implementing these strategies also requires significant logistical coordination and agreement on commercial terms, which can be complex and time-consuming.

Conclusion

The EU’s 2025 emission regulations are driving the auto industry’s shift toward sustainability. Partnerships between traditional automakers and electric vehicle leaders like Tesla focus on both regulatory compliance and gaining a competitive edge in a carbon-conscious market.

These collaborations signify a major transformation in the automotive sector, emphasizing the need for cooperation to foster innovation. While reliance on these alliances may lessen as investment in EV technologies increases, they remain vital during this transition.