China Hybrid Triumph: In the highly competitive landscape of China’s electric vehicle (EV) market, a fascinating trend is unfolding – a price war among EV makers is inadvertently propelling Chinese hybrid brands to the forefront. These brands, boasting robust hybrid lineups, are capturing consumer attention with long-range vehicles at prices lower than traditional gasoline cars.
This emerging trend offers a glimmer of hope for global automotive giants like Toyota and Honda, which are grappling with the slowdown in EV sales in Europe and the U.S. due, in part, to high auto financing costs. Toyota, a leader in the global automotive arena, is already witnessing success with hybrids, constituting one-third of its total vehicle sales. Hybrid sales for the first half of the year surged by 34%, outpacing the overall revenue growth of 9%.
However, experts caution that foreign brands now face a formidable challenge from Chinese rivals who have established dominance in the domestic hybrid market and are eyeing overseas expansion. Empowered by their status as the world’s lowest-cost EV producers, these Chinese brands present a genuine threat to their global counterparts.
Unlike the U.S., where hybrid powertrains often command a premium of $1,500 to $2,000 over combustion models, in China, some hybrids are offered at a slight discount to gasoline models and can be up to 23% cheaper than pure EVs. This pricing advantage is a significant factor driving Chinese consumers towards hybrids, especially given their functionality resembling pure EVs during short daily commutes, consuming minimal gasoline.
Two types of hybrids, namely plug-in hybrid (PHEV) and extended-range hybrid (EREV), are experiencing a surge in demand. Their combined shipments have increased by 85%, surpassing the 14% growth in pure electric car sales this year. Notably, this hybrid segment now represents half of the pure EV market and constitutes 12% of total passenger vehicle sales, as reported by the China Association of Automobile Manufacturers (CAAM).
Companies like Li Auto, a leading extended-range hybrid seller in China, are witnessing significant demand, with thousands of customers eagerly awaiting delivery of its new large SUVs. This success stands in stark contrast to other brands dealing with unsold inventory buildup.
In the plug-in hybrid market, BYD has secured a dominant position, with eight of the top 10 selling plug-in hybrid cars in China belonging to its lineup. This growing popularity of PHEVs and EREVs from Chinese firms not only affects sales of gasoline cars but also challenges the market for gasoline hybrid vehicles (HEV), a segment pioneered by Toyota with the introduction of the Prius in the late 1990s.
HEV sales in China, where Toyota remains dominant, have declined by 15%, while gasoline car sales dropped by 11%, underscoring the potential challenges faced by foreign automakers. Government policies favor battery-driven hybrids in China, offering tax cuts for EVs, PHEVs, and EREVs, contributing to the sales slump of traditional HEVs.
Foreign automakers, including General Motors and Toyota, have faced hurdles in the Chinese EREV market, ceding ground to local rivals. Chinese companies like BYD are now eyeing overseas markets for growth, with plans to expand PHEV sales to Latin America.
However, skeptics remain, questioning the long-term viability of HEVs. Bill Russo, CEO of advisory firm Automobility, sees conventional hybrids as a temporary solution, breathing life into the traditional gasoline engine. As Chinese hybrid brands surge, the global automotive landscape faces a transformative shift, with pricing dynamics playing a pivotal role in shaping consumer preferences.