General Motors is hedging its bets to meet national emissions standards by turning to Tesla Inc. as insurance of sorts.

People who buy gasoline-powered cars ultimately foot the bill.

GM and Fiat Chrysler Automobiles disclosed to the state of Delaware earlier this year that they have reached agreements to buy federal greenhouse gas credits from electric carmaker Tesla, Bloomberg first reported.

Selling those credits has been a key for Tesla's revenue for years. But it's the first time automakers have openly acknowledged they rely on Tesla to help them meet increasing U.S. environmental regulations. Tesla has reported almost $2 billion in revenue from the sale of regulatory credits since 2010, Bloomberg reported.

But this revelation should open consumers' eyes that every gasoline-powered car they buy subsidizes Tesla's existence, say industry observers.

"Last year, competing automakers paid Tesla $420 million to buy absolution because they were unable to meet the emissions mandate," said Jim Appleton, president of the New Jersey Coalition of Automotive Retailers. "Every Tesla is sold at a loss, but that loss is subsidized by Chevy drivers and others by a couple thousand dollars."

Consumer subsidy

Appleton said if people understood how the industry works, they'd be "embarrassed to drive a Tesla because their neighbor would say, 'When are you going to thank me for subsidizing that high-tech piece of status symbol you drive?'”

Appleton said by dividing $420 million by the 250,000 cars Tesla sold in the United States last year, every Tesla comes with a $1,680 subsidy paid by other car buyers.

"And that’s just the beginning," said Appleton. "A $100,000 Tesla avoids $6,625 in state sales tax and last year that same car came with a $7,500 federal tax credit. In other words, Tesla buyers helped themselves to a nearly $16,000 subsidy, resulting in higher taxes and higher car prices for everyone else. Oh, and let’s not forget, Tesla owners pay no gas tax to support the roads they travel."

These deals to sell credits to automakers are certainly not the source of cash Tesla CEO Elon Musk is seeking to promote, said Jon Gabrielsen, economist and consultant to automakers.

But, he said, "I do not see any negative impact on GM at all — they would not buy them if there was not a favorable business case to do so. As for Tesla — it is propping them up somewhat."

In a statement to the Free Press, Tesla said it "has succeeded in spite of government subsidies, not because of them."

Public filings show that Tesla was profitable in the third and fourth quarters of last year without selling any emissions credits.

The company's statement continued, "Third-party studies have shown that our biggest competitors, including the oil and gas industry, receive trillions of dollars in subsidies each year. In comparison, Tesla receives virtually nothing yet still manages to compete with these giants. Tesla owes its existence to its employees, customers, shareholders, and suppliers, for whom we are deeply grateful.”

'Insurance policy'

The filings did not offer details of the agreements GM or FCA reached with Tesla. But the deal illustrates the increasing challenge automakers face to meet U.S. fuel efficiency requirements.

In fact, from last two editions of the EPA Trends Report, eight automakers in the United States did not meet model-year 2016 emissions standards without using credits banked from previous model years. That rose to 10 for the 2017 model-year: FCA, Ford, GM, Hyundai-Kia, Mazda, Mercedes-Benz, Nissan, Mitsubishi, Toyota and Volkswagen.

GM has regularly stated its commitment to a zero emissions and all-electric future. The company has poured billions into developing electric and self-driving vehicle technology. In March, CEO Mary Barra said GM would spend $300 million and add 400 jobs to its Lake Orion Assembly plant north of Detroit. GM builds the all-electric Chevy Bolt there, and Barra said GM will add another fully electric car to production at the plant.

More:GM plans to make new electric car, spend $300M, hire 400 workers in Lake Orion

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GM spokesman Jim Cain said GM does not need credits for compliance today, but "purchasing credits is permitted under the regulations and is used as an insurance policy against future regulatory uncertainties."

The filing is a routine procedure that is used to protect interests in performance of contractual obligations, Cain said in an email to the Free Press.

A spokesman for FCA said it will use credits "as appropriate" until demand for electrified vehicles catches up with regulatory requirements. It signed the credit purchase deal with Tesla in 2016.

"A critical obstacle to compliance with (greenhouse gas) and fuel-economy standards is the lack of consumer demand, because compliance is contingent on

both the type and number of vehicles sold," Eric Mayne said in a statement to the Free Press.

In April, FCA said it also has plans to pool its fleet with that of Tesla to meet the European Union’s requirements. Reports state that FCA has a deal with Tesla, estimated by analysts to be about $500 million, to help it meet the European region’s regulatory changes.

The deal will let FCA count Tesla’s vehicles as part of its own fleet, thus dodging penalties over emissions.

Government mandates

So just what is a greenhouse gas emission credit and why would carmakers purchase them?

Until the Trump administration froze fuel economy standards, the U.S. government had expected carmakers to achieve an estimated fuel economy average of 54.5 mpg by 2025. Under those rules — which could return under a Democratic administration — automakers not reaching the standard would use credits to avoid fines or other penalties.

Tesla is based in California, which requires automakers to sell a certain proportion of zero-emission vehicles in accordance with their overall share in the market. Some traditional automakers need emission credits to meet that balance between the zero-emission and gasoline-powered internal combustion vehicles delivered in the U.S. market.

The Center for Automotive Research in Ann Arbor said emissions credits are earned by exceeding the Environmental Protection Agency's target for a given model year, implementing technologies that improve fuel efficiency, selling electric cars, using alternative fuels or any combination of the above.

Or buying credits from a rival if needed.

For a long time, Appleton said, many automakers did not view Tesla as a rival. But in recent years, Audi, BMW, Mercedes-Benz and others have introduced luxury electric vehicles to compete with Tesla.

The Chevrolet Bolt is "the real Model 3," for a lot less money, Appleton said. "The average price of Model 3 last year was $57,000, you can buy a Bolt for $37,000, and the Bolt is every bit desirable a vehicle as the Tesla."

Getting credit

GM has sold its plug-in hybrid Chevrolet Volt and all-electric Chevy Bolt for years, and the cars have left GM with adequate emissions credits. But the consumer demand for electric cars pales in comparison to the voracious appetite for GM's gas-guzzling pickups and SUVs.

If an automaker doesn't meet the EPA emission target even after using all its credits, it will have to offset the deficit within three years or face fines. Regulators could even make the automaker stop selling all non-complying vehicles in the United States. In GM's case, that could be its big money-makers: pickups and SUVs.

For that reason, GM wants to bank the credits for the future when emissions rules could tighten again, especially if a Democrat wins the White House in 2020.

More:Trump plan freezes fuel economy standards, sets up fight with states

All automakers met U.S. emission rules in model year 2017, but most large manufacturers cashed in credits to get there, Bloomberg reported, citing the EPA's March report. At the end of model year 2017, 90% of all the credits held by the industry will expire at the end of 2021 if they are not used.

The credits remain critical both to Tesla and the companies that buy its credits.

"Tesla has only survived as long as it has because of the generous government exemptions it receives at the state and federal levels," said Appleton. "The clean air credits have allowed Tesla to stay in business as long as it has because middle class car buyers have floated it."

Contact Jamie L. LaReau at 313-222-2149 or jlareau@freepress.com. Follow her on Twitter @jlareauan. Read more on General Motors and sign up for our autos newsletter.