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(CNN Business) —  

Tesla is selling emissions credits to Fiat Chrysler as the Italian automaker tries to avoid steep EU fines on carmakers who fail to meet tough new pollution standards.

The companies have formed an “open pool” that allows their fleets to be counted together under new rules that restrict emissions of carbon dioxide (CO2), according to documents published by the European Union.

The auto industry needs to slash CO2 emissions of vehicles sold in Europe by 25% to meet the aggressive caps by 2021, according to UBS. The Swiss bank’s analysts estimate that will reduce EU carmaker profits by €7.4 billion ($8.3 billion) combined.

Companies that are investing heavily in hybrid or electric vehicle technology, such as Volkswagen (VLKAF), are well positioned to meet the new standards. Laggards will need to find other ways of avoiding fines.

UBS analysts warned last week that Fiat Chrysler (FCAU) was the automaker with the “highest risk of not meeting the target.”

“Fiat Chrysler is facing the biggest challenges to comply with CO2 targets due to a period of under-investment in electrification,” the UBS analysts wrote, adding that it’s “starting almost from scratch.”

Joining forces with Tesla (TSLA) was one way for the company to reduce the risk of fines. Japanese automakers Toyota (TM) and Mazda (MZDAF) have also formed a pool.

EU targets

Fiat Chrysler said Monday that EU rules allowing carmakers to join forces to meet fleet CO2 targets provide “flexibility to deliver products our customers are willing to buy while managing compliance.”

“The whole point of a CO2 credit market is to leverage the most cost-effective ways to reduce overall greenhouse gas emissions in the market,” the company said in a statement.

The Financial Times, which was first to report the arrangement, said that Fiat Chrysler was paying Tesla (TSLA) hundreds of millions of euros for its emissions credits. Fiat Chrysler did not comment Monday on the financial details.

It’s not the first time that Tesla has received a financial windfall from its traditional competitors.

The company brought in millions of dollars earlier this decade by selling credits tied to its electric cars in the United States, where carmakers were struggling to meet sales targets for zero-emissions vehicles.

Tesla could use the cash infusion from Fiat Chrysler. It reported a sharp drop in deliveries during the first quarter, heightening concerns about its ability to pay down its sizable debts.

In March, Tesla paid off a $920 million bond that took a big chunk out of the $3.7 billion in cash it had on hand at the start of the quarter. That followed a $230 million payment the company made in November.

Its next big payment is a $566 million debt issue that is due in November, followed by another $1.4 billion in notes that is due in two years.

Chris Isidore contributed reporting.