For the first time, Nio and Xpeng are joining Volkswagen's EU CO2 pool in 2021 and 2022 to help the automotive giant cut its average CO2 emissions.

(Image credit: schmidtmatthias.de)

"Both Nio and Xpeng, joining the pool for the first time, and remaining in 2022 also, are recent arrivals to Europe with limited volumes, mainly in Norway so far this year," Schmidt noted.

Volkswagen's reasons for adding new members to the pool are unclear, though the automaker confirmed the move, according to Schmidt.

The EU 27 member countries plus Norway and Iceland's combined CO2 fleet average legislation requires passenger car manufacturers to meet a defined mass-adjusted fleet average CO2 target of 95g/km in the old NEDC drive cycle or closer to 120g/km in the WLTP cycle up to 2025, Schmidt noted.

It's worth noting that in China, electric and conventional car companies appear to be in a similar position.

China released the dual-credit policy in 2017, which is known as the "Parallel Management Measures for Average Fuel Consumption and New Energy Vehicle Credits for Passenger Vehicle Enterprises". The policy has been in effect since April 1, 2018.

Vehicle companies that fail to meet the fuel consumption control requirements can offset the negative credits from excessive fuel consumption by generating their own new energy vehicle credits, or by purchasing new energy credits from other companies.

If a carmaker is unable to get their negative credits to zero, then they need to submit a product adjustment plan to the Chinese Ministry of Industry and Information Technology (MIIT) and set a deadline for compliance.

Until their negative credits are zeroed out, products with substandard fuel consumption cannot be sold to the public.

According to the MIIT's 2020 annual accounting table for Chinese passenger carmakers in early July, FAW-Volkswagen's NEV credits were -138,832 and SAIC-Volkswagen's were -92,888, ranking first and third in negative credits respectively.

Based on the price of about RMB 3,000 per unit of the credit, this means that Volkswagen needs to pay billions of RMB to comply with carbon emissions in China.

In a conference call following the November 10 announcement of third-quarter earnings, William Li, founder, chairman, and CEO of Nio, said the majority of the company's regulatory credit sales were realized in the third quarter, earlier than last year.

Nio's vice president of finance Stanley Qu said regulatory credit sales generated RMB 517 million in revenue, adding that Nio's new energy regulatory credits reached 200,000 in the third quarter.

Nio did not disclose at the time which car companies had purchased their credits.