File picture: Lucy Nicholson / Reuters.

London - Fiat Chrysler (FCA) has confirmed that it will pay hundreds of millions of dollars to electric carmaker Tesla, to avoid getting hit by European Commission fines.

The statement from the Italian-US firm confirmed a report in the Financial Times that FCA was paying Tesla, whose electric cars have no CO2 emissions.

The European Union imposes limits to the levels of carbon dioxide emissions cars can produce. But companies can pool CO2 credits between them to avoid fines from the European Commission.

But does that not defeat the object? FCA doesn't think so:

"The whole point of a CO2 credit market is to leverage the most cost-effective ways to reduce overall GHG (Greenhouse Gas) emissions in the market," said an FCA statement.

In June 2018, Fiat Chrysler announced a nine-billion euro investment in moving its vehicles towards electric power to adapt to European norms.

Part of this plan, according to reports, is to launch a new generation of the Fiat 500 compact hatch that is fully electric. This new model will co-exist alongside the current generation, which will retain its internal combustion engines.

Agence France-Presse & IOL