Tesla Inc TSLA has been profitable for the last few quarters, and a big part of that is thanks to selling regulatory electric vehicle credits to more traditional auto manufacturers.
This allows manufacturers to comply with emissions regulations while still transitioning gas-powered fleets to more efficient vehicles.
Reuters reports that Volkswagen is going to buy credits from Tesla in China to comply with emissions regulations in the country. This is the first time Volkswagen has purchased credits from Tesla in China to comply with regulations.
Volkswagen has been ramping up its EV fleet to compete with Tesla, especially in Europe.
Volkswagen's low cost VW E-UP! had the top sales spot in Germany in February, but the more expensive Tesla Model 3 took second place, outselling the more comparable Volkswagen ID.3.
When a manufacturer exceeds emissions standards, the company generates excess green credits. It can then sell these credits to other manufacturers that don't meet the mark.
Since Tesla only builds and sells electric vehicles, the company always has excess credits to sell to other vehicle manufacturers. These credits are a source of income for Tesla, and lately these credits have been making the company profitable.
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Photo courtesy of Tesla.
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