European automakers are racing to avoid massive carbon emission penalties imposed by the European Union (EU) by forming strategic alliances with electric vehicle (EV) manufacturers. As the pace of EV adoption in Europe has been slower than projected, several legacy carmakers have turned to “pooling” agreements — sharing emission credits with EV-focused companies to meet stringent regulatory targets, Reuters reports.
EU Carbon Emission Fines and Regulatory Adjustments
The EU’s carbon emission regulations have become a critical factor shaping automakers’ 2025 strategies. Originally, carmakers faced potential fines totaling up to 15 billion euros ($17.5 billion) for exceeding emission limits. However, in a significant regulatory shift announced in March, the European Commission allowed compliance calculations to be based on average emissions across 2025–2027 rather than just 2025.
This concession gives traditional automakers more breathing space to scale up electric production, secure EV credits, and realign business strategies amid the ongoing transition to green mobility.
Alliance Agreements to Offset Emissions
All existing pooling agreements — officially managed through “pool managers” — will expire at the end of 2025, though many are expected to be renewed or expanded in the coming years. These alliances allow automakers with higher emissions to purchase carbon credits from EV-focused firms, thus avoiding EU fines while promoting industry collaboration on sustainable mobility.
Below is a breakdown of key alliances formed by major automakers in 2025:
Mazda’s Dual Partnerships
Japanese automaker Mazda joined forces in October with Changan Mazda Automobile, a 50-50 joint venture with China’s Changan. Earlier this year, Mazda also became part of a pooling agreement centered around Tesla — one of the most sought-after partners for legacy automakers due to its surplus emission credits.
Nissan and BYD Collaboration
In a move highlighting growing China-Japan EV cooperation, Nissan pooled emissions with Chinese EV leader BYD in early October. This alliance allows Nissan to balance its combustion-heavy vehicle lineup with BYD’s zero-emission fleet.
KG Mobility and Xpeng Pooling
South Korea’s KG Mobility teamed up with Chinese EV maker Xpeng at the end of September, forming another emissions pooling partnership. This collaboration demonstrates how Korean automakers are leveraging Chinese EV innovation to navigate Europe’s carbon targets.
Tesla’s Expanding Emission Credit Pool
In January, Tesla — the largest holder of EV carbon credits — established a wide-reaching pool with Stellantis, Toyota, Ford, Leapmotor, Mazda, and Subaru. The alliance expanded further in March when Honda and Suzuki joined, underscoring the industry’s growing dependence on Tesla’s green advantage.
Mercedes-Led Luxury Pool with Geely-Backed Brands
A parallel alliance was created in January featuring Mercedes, Volvo Car, Polestar, and Smart Automobile. Volvo and Polestar, both backed by China’s Geely, bring substantial EV expertise to the table.
EV Market Outlook in Europe
Despite regulatory pressure, electric vehicle adoption in Europe continues to rise steadily. According to AlixPartners, EVs accounted for 12 percent of total European light vehicle sales in 2024, with projections suggesting a rise to 15 percent in 2025. The consultancy expects EV market share to climb to 24 percent by 2027 and 40 percent by 2030, signaling a decisive but gradual shift toward electrification.
ESG Implications and Sustainable Transformation
These alliances underscore how environmental, social, and governance (ESG) factors now directly influence corporate strategies in the automotive sector. Beyond avoiding fines, automakers are using pooling as a bridge toward genuine decarbonization, while expanding EV production capabilities and investing in sustainable innovation.
Faheema P