A deal in China could effectively see Volkswagen subsidising a rival.
Reuters sources say a VW joint venture in the country has agreed to buy green car credits from Tesla.
This would help it meet increasingly tough environmental targets there.
The sources say VW's joint venture with state-owned Chinese automaker FAW, or FAW-Volkswagen, has agreed to buy credits from Tesla.
VW is on a mission to transform its huge petrol carmaking business into a leader in electric vehicles to rival Elon Musk's firm.
Shares in VW have soared this year as investors warm to its plans to go electric.
But in China, where it is the biggest foreign carmaker, it's still heavily reliant on traditional combustion-engine vehicles.
China, the world's biggest auto market, runs a credit system that encourages automakers to work towards a cleaner future.
This can include improving fuel efficiency or making more electric cars.
Manufacturers are awarded green credits that can be offset against negative credits for producing more polluting vehicles.
Volkswagen declined to comment on the deal.
Tesla did not respond to requests for comment.