In BEV-crazy China, plug-in hybrids are currently booming due to affordability and usability

In the world’s largest car market, there’s a growing consumer preference for plug-in hybrids over conventional gasoline-powered vehicles and battery-electric vehicles (BEVs).

According to a report by Bloomberg, a growing number of Chinese buyers are moving towards plug-in hybrids (PHEV) which are cheaper than BEV vehicles but still offer savings on daily commutes without the range anxiety on longer trips.

This shift towards PHEVs is indicative of a larger movement within China's automotive sector. Following the phase-out of national EV subsidies at the end of 2022, plug-in hybrids have emerged as a significant growth segment. In contrast to the modest 21 percent growth for battery-only EVs last year, PHEV sales surged 83 percent in the same period.

The trend persisted into 2024, with January witnessing a 39 percent slump in BEV deliveries from the previous month, whereas PHEVs experienced a comparatively lesser decline of just 16 percent. This occurred in a context where overall vehicle sales dipped by 14 percent, according to data from the China Passenger Car Association (PCA).

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Despite battery EVs maintaining a sales lead— outselling PHEVs by more than 2 to 1—the rapid ascent of PHEVs raises near-term doubts about China's ambition for a BEV-based transportation sector.

This evolving market dynamic also spells trouble for BEV-exclusive manufacturers like Tesla, Xpeng, and Nio, whose customer base is largely concentrated in China's major cities but have struggled to make inroads in more rural areas of China.

BYD stands out as a major beneficiary of this trend, having sold 3 million vehicles in 2023, with PHEVs constituting nearly half of its sales. The success of BYD's DM-i PHEV platform – now in its 4th-generation – not only established it as the top-selling car brand in China but also propelled itself past Tesla to become the world's largest xEV manufacturer in the last quarter.

The narrative also touches on the position of Japanese automakers like Toyota and Nissan in China, who, despite their pioneering role in hybrid technology, have lacked offerings in the PHEV market due to a focus on traditional hybrids that do not qualify for China's local subsidies or tax exemptions.

Speaking on this growing consumer trend, Ilaria Mazzocco from the Center for Strategic and International Studies said “I think there’s sort of a game where some cities can keep readjusting policies and give priority to BEVs over PHEVs. But as companies provide reliable and affordable options, consumers tend to respond. There is a demand for PHEVs.”

According to PCA, China's original EV industry guidelines outlined that 25 percent of new car sales will be electrified (inclusive PHEVs) by 2025, 90 percent of which was to be represented by BEVs. That 25 percent xEV goal was met ahead of schedule, in 2022, however, BEVs only account for 66 percent of the total (25 percent) xEV sales in the country otday, with growing percentage moving towards PHEVs. 

The stark contrast between the sales slump of BEV-only stalwarts like Tesla, Polestar, Nio, and Xpeng, versus the record earnings by companies with more varied product portfolios such as Toyota, Volvo and BYD proves one thing: BEVs might be the future, but manufacturers need profitable hybrids today to fund their BEV endeavours of tomorrow.

This prevalent trend is also nicely characterised by Bill Russo, CEO of China-based consultancy Automobility in the same report, “It may not be possible to get to the other side of the river in one step. Plug-in hybrids sit on the EV side of the river. The conventional hybrid sits on the internal combustion engine side. The plug-in hybrid was designed to give the traditional auto industry, [which] a lot of investments and jobs revolve around, a way to feel their way across the river by stepping on this stone.”

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