By Dhirendra Tripathi
Investing.com – Tesla (NASDAQ:TSLA) shares were up 2.5% in Thursday’s premarket, driven by a report that a Chinese joint venture of rival Volkswagen (OTC:VWAPY) could buy green car credits from it to help it meet local environmental norms.
To help meet increasingly tough targets, Volkswagen's joint venture with state-owned Chinese automaker FAW has agreed to buy credits from Tesla, according to Reuters.
Like other major auto markets, China requires carmakers to ensure that the average emissions of the cars they sell falls below a certain threshold. Those who can't meet that standard by their own efforts are allowed to buy credits from others such as Tesla.
Tesla's revenue from selling regulatory credits totaled $1.58 billion in 2020, as per a regulatory filing. It has relied on such income to offset operating losses throughout its startup phase. Those operating losses are now narrowing, but its competition's needs for credits is also falling as other carmakers also pivot to models with lower emissions.FAW-Volkswagen's offer was around 3,000 yuan per credit, Reuters said quoting sources.
The report comes against a backdrop of a narrowing of the massive valuation gap between Tesla and VW, the world's second-largest automotive group by sales. VW shares have risen sharply in recent weeks in response to its progress in rolling out EVs. It is on course to sell more EVs than Tesla this year, according to the two companies' respective output forecasts.