Strong demand in China could prove the saviour of the plug-in hybrid globally as the ‘bridge to EV’ technology stumbles at legislative hurdles in the UK and Europe.

Chinese makers now dominate the global PHEV market after sales rapidly grew this year, topped by BYD.

“Initially of European origin, PHEV technology has gradually become a Chinese specialty,” automotive analyst Inovev said in a new report revealing the extent of the Chinese dominance.

Having grown the market so far this year in China, brands such as BYD, SAIC's MG, Geely's Lynk&Co and Chery’s Jaecoo are now targeting Europe with PHEVs that significantly undercut equivalents from established global car makers, providing that crucial element of affordability that the tech has so far lacked.

Lower prices are expected to expand PHEVs' reach beyond their current popularity with fleets and premium brands, where sales are being driven by tax incentives based on unrealistic CO2 figures.

That in turn should protect PHEVs from new measures in both the UK and the EU to clamp down on the tax-swerve element of their popularity and so create a more consistent market ahead of the planned banning of ICE car sales in 2035.

The Chinese push into Europe with the technology has been accelerated by the fact that the EU has exempted PHEVs and variants such as range-extender (REx) EVs, with their bigger batteries, from punitive new tariffs on Chinese-built EVs.

An Conghui, CEO of Lynk&Co parent brand Zeekr, told analysts on the company’s third-quarter earnings call on 15 November: "Lynk&Co in Europe will focus on PHEV vehicles, because those models are not subject to the additional tariff by the EU authorities."

China is the now the undisputed global centre of PHEVs, driven by home demand but increasingly by exports as well. BYD is the outright leader, with 1.48 million PHEVs sold globally in the first nine months, led by the Seal U SUV. PHEVs accounted for just over half the company’s sales, according to Inovev. Geely was second, at just over 350,000, Li Auto third and the Seres Group fourth.

The best-performing non-Chinese company was the Volkswagen Group in sixth, with just under 200,000 PHEV sales globally in the same nine-month period, followed by Stellantis in seventh.

The Volvo XC60 was the only non-Chinese model to make the global PHEV top 20 in 2024, although the car is arguably Chinese as well, given Volvo’s Geely parentage.

Sales of plug-in cars (including PHEVs) in China this year will hit reach around 10 million this year, according to estimates by the bank Bernstein.

PHEVs have largely driven this growth, with October sales up 119% to take a 22% share of the Chinese market. EVs still had the edge with a 30% share in October, but growth was more muted, at 40%.

“Plug-in hybrids are set to see further growth [by offering] EV ownership benefits with no range anxiety,” Bernstein senior analyst Eunice Lee wrote in a September report.

Drive a PHEV in China and you still get the green plate denoting a NEV ('new-energy vehicle') that allows you to avoid restrictions meted out to ICE cars, while car makers can use them to claim credits in the Chinese version of the UK’s ZEV mandate.

Brands that had intended to push for all-electric model line-up are now rapidly developing either PHEV or REx models, especially at the higher end of the market.

The most prominent example is Geely-owned Lotus, which announced that it will launch 'Hyper Hybrid' tech in 2026 as a new drivetrain option for the Eletre and Emeya EVs.

In Europe, however, PHEV sales have stalled at 777,330 to the end of October, down 4.1% from the year before. This was despite growth of 22% in the UK, the second-largest market for the technology in Europe after Germany.

Sales so far this year in the UK have been driven by manufacturers looking to reduce their average CO2 emissions as part of a frenzied drive to reach the targets set by the ZEV mandate.

Car makers must increase EV sales to 22% of their total, but flexibilities allow them to generate credits from achieving better-than-required fuel-economy improvements.

According to lab tests, PHEVs are vastly better than hybrids at cutting CO2, and that has made them popular with car makers that have found it harder to reach the ZEV mandate targets.

The Ford Kuga was the UK’s best-selling PHEV to the end of November, with 11,797 sales, and the Audi A3 was next, at 8359. Sales of the PHEV version of the A3 shot up 81% compared with the same period last year, helping the Volkswagen Group hit its mandated targets.

Meanwhile, Toyota PHEV sales soared 340% in the year, helped by the launch of the new-generation C-HR with the technology as an option.

However, PHEVs in the UK are about to be hit by a double whammy. First from a new WLTP test cycle due next year to better reflect their real-world fuel economy, revealed in multiple studies to be barely above than that of hybrids, and secondly a change in their taxable benefit when sold as company cars.

The latter won't hit until the 2028/9 tax year but will affect cars bought from next year if taken over three years.

“This could significantly impact demand for those vehicles among company car drivers,” said Matthew Walters, UK head of consultancy services and customer value at fleet leasing giant Ayvens.

The impact of a fleet-incentive change can rapidly hit sales, as has been seen in Belgium, which last year changed PHEVs' tax status to increase costs for company car drivers. The result was a 28% drop in PHEV sales this year, according to European industry body the ACEA.

Car makers are increasing PHEVs' battery sizes to get around the WLTP testing problem on the basis that longer electric-only ranges will maintain their low CO2 status. For example, the new PHEV version of the Volkswagen Tiguan is claimed to do 62 electric miles on a charge, an increase of some 30 miles over the old model.

However, the increased cost of doing that just puts them further out of reach for retail customers, who remain in a minority of buyers. More than two out of every three PHEVs bought this year were to fleet customers, where the suspicion remains that they're chosen more for the tax savings than fuel-economy improvements, reducing the likelihood that they will be plugged in.

Cheaper Chinese PHEVs will tempt more private customers – or so their makers hope. The stand-out example is the new MG HS compact SUV, which has a large 24.7kWh battery for a claimed 75 miles of electric range but costs from £31,495, undercutting the equivalent Tiguan by more than £10,000.

“I don’t think many people look at the running costs; it’s all about the monthly price,” said David Allison, head of product and planning for MG Motor UK. “But if I'm looking to spend £30,000 to £40,000 on an ICE Ford Kuga knowing I could get an equivalent HS [PHEV] and knowing I could plug it in, that might be the right equation.”

Part of the appeal of Chinese PHEV and REx models is a much beefier electric motor, giving the smoothness of an EV with the ICE acting as more of a range-extender than a power booster when the right foot is fully deployed. The electric motor on the HS PHEV, for example, is rated at 209bhp, compared with 143bhp for the 1.5-litre petrol engine.

Others are following MG into the UK, with GWM poised to launch its hybrid brand Haval and Jaecoo promising a plug-in hybrid option.

Car makers outside China are also now looking at REx technology as a bridge to EVs, including Hyundai, Volkswagen's American Scout brand and Stellantis via its big American pick-up trucks.

The new breed of PHEVs elevate the technology from a compromised solution engineered more for its tax savings to a genuine stepping stone for those wanting the refinement of an EV but still needing the range of an ICE car. The Chinese element of a lower price will give the tech a much-needed push as mostly undeserved incentives fall away.