Hybrid Vehicles Witness Soaring Sales in China, Presenting a New Challenge for Foreign Automakers

    Chinese Hybrid Cars Gain Popularity Amidst EV Slowdown

    As electric vehicle (EV) sales experience a slowdown in Europe and the U.S., Chinese automakers with strong hybrid lineups are emerging as winners in the market. These hybrid vehicles, which offer long range and lower costs compared to gasoline cars, are attracting consumers and providing hope for global automakers such as Toyota and Honda.

    Chinese brands, leveraging their position as the world’s lowest-cost EV producer, are engaging in an intense price war to prop up slowing demand. Some hybrids in China are even offered at a slight discount to gasoline models and can be up to 23% cheaper than pure EVs. This price advantage is driving Chinese consumers to choose hybrid models, especially for short daily commutes where they can work almost like pure EVs and consume less gasoline.

    Toyota, the world’s top-selling automaker, has already embraced hybrid technology. One-third of its total vehicle sales are hybrids, and the company reported a 34% surge in hybrid sales in the first half of 2023, outpacing overall revenue growth of 9%. However, experts warn that foreign automakers now face a growing threat from Chinese rivals, who have conquered the domestic hybrid market and are looking to expand overseas.

    The popularity of hybrids in China can be attributed to two types: plug-in hybrid (PHEV) and extended-range hybrid (EREV). These hybrids have seen an 85% surge in combined shipments, outpacing the 14% growth in pure electric car sales this year. The segment now accounts for 12% of total passenger vehicle sales in China, providing strong competition for gasoline cars and traditional hybrid vehicles.

    Li Auto, the most popular extended-range hybrid seller in China, has thousands of customers waiting for delivery of its new large SUVs, highlighting the demand for these vehicles. Yale Zhang, managing director at the consultancy Automotive Foresight, explains that extended-range hybrids are the best option for Chinese drivers who want to eliminate driving range anxiety, improve fuel efficiency, and enjoy smarter driving features, all at lower prices.

    In the plug-in hybrid market, Chinese automaker BYD has established its dominance, with eight of the top 10 best-selling plug-in hybrid cars in China coming from its offerings. On the other hand, the sales of gasoline hybrid vehicles (HEV), a segment pioneered by Toyota with the Prius in the late 1990s, have dropped 15% in China, while gasoline car sales have fallen 11%. This decline further underscores the challenges that foreign automakers face in the Chinese market.

    The struggles of General Motors (GM) and Toyota in China serve as a stark reminder of the growing threats posed by Chinese rivals. GM launched the Buick Velite 5 as the first extended-range hybrid in China in 2017 but halted sales in 2020 after selling just over 4,000 units. In contrast, Li Auto sold 244,225 EREVs in the first nine months of 2023. This trend raises concerns for foreign automakers, who are now looking to export markets for growth.

    Chinese automaker BYD is expanding its PHEV sales overseas, targeting Latin America, where charging infrastructure is less developed. Stellantis, a multinational automotive manufacturer, is also showing interest in bringing Chinese partner Leapmotor’s EREV hybrids to Europe. This indicates that Chinese automakers are gearing up to compete in international markets.

    However, Xu Min from Shanghai Jiao Tong University’s Institute of Intelligent Vehicle points out that the demand for Chinese cars may vary across markets due to different driver preferences. For example, North American consumers may prioritize cars with bigger horsepower for towing trailers, thus favoring hybrids.

    While conventional hybrids (HEVs) are currently popular in China, some experts remain skeptical about their long-term future. Bill Russo, CEO of Shanghai-based advisory firm Automobility, believes that HEVs are only prolonging the life of gasoline engines. This skepticism raises questions about the sustainability of hybrid technology as EVs continue to gain traction worldwide.

    In conclusion, Chinese automakers with strong hybrid lineups are gaining popularity amidst the slowdown in EV sales. Their ability to offer vehicles with long range at lower costs compared to gasoline cars is attracting Chinese consumers. This trend poses challenges to foreign automakers and emphasizes the growing threat from Chinese rivals. However, the demand for Chinese cars may vary across markets, and the long-term future of conventional hybrids remains uncertain.

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