[SMM Analysis] The Expansion of Hybrid Technologies and the Reshaping of the Global EV Market

30 Years of China’s NEV Industry — The Evolution of Hybrid Powertrains and New Variables in the Global Market

Since its inception in 1995, China’s new energy vehicle (NEV) industry has recorded sustained growth under strong government policy support, evolving into one of the most influential EV markets globally by 2025. Among the many policies shaping this trajectory, the “New Energy Vehicle Industry Development Plan (2021–2035)”, released by the State Council in 2020, stands out as a pivotal framework defining the long-term direction of China’s NEV sector.

The plan introduced a range of consumer incentives, including purchase subsidies that remained in place through 2022 and NEV purchase tax exemptions extended until 2025. Supported by these measures, China’s NEV market experienced explosive growth. According to SMM’s internal research, the market posted year-on-year growth of more than 150% in 2021, followed by continued expansion that lifted NEV penetration to approximately 45% by 2024, a milestone that underscores China’s leadership in global electrification.

From EV to HEV, PHEV, and REEV — Rapid Segmentation of Hybrid Technologies

The NEV category in China encompasses not only battery electric vehicles (EVs) powered exclusively by electricity, but also a wide range of hybrid powertrain architectures. In recent years, growing attention has focused on hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEVs), and range-extended electric vehicles (REEVs), reflecting increasing diversification within the electrification landscape.

HEV — The Most Traditional Hybrid Architecture

HEVs represent the earliest commercialized form of hybrid technology. Their operating logic typically includes:

• Electric motor propulsion during low-speed driving and vehicle launch
• Combined use of the internal combustion engine and electric motor during acceleration
• Regenerative braking to recharge the battery during deceleration

HEVs offer the advantage of not requiring external charging infrastructure and deliver improved fuel efficiency. However, because the engine still plays an active role during driving, exhaust emissions remain unavoidable.

In China, the HEV segment has historically been led by global legacy OEMs. More recently, some manufacturers have introduced next-generation HEV models equipped with smaller battery packs and improved system efficiency, allowing them to maintain a presence in an increasingly competitive market.

PHEV — Electrification-Centric Design with External Charging

Compared with HEVs, PHEVs are engineered to achieve a much higher proportion of electric driving. Their typical operating characteristics include:

• Predominantly electric driving for daily commuting

• Engine support during long-distance or high-speed driving

• External charging via plug-in infrastructure

This structure significantly reduces emissions relative to HEVs, but it also necessitates batteries with higher energy density and sufficient capacity.

China’s PHEV market has expanded rapidly over the past several years, driven by major OEMs launching mid- to large-sized PHEV models equipped with high-capacity battery packs. Some models now carry batteries of around 40 kWh, enabling electric-only driving ranges of 450-550 kilometers, approaching the usability of pure EVs under real-world conditions.

REEV — A More Advanced, Near-Full Electric Architecture

REEVs are clearly differentiated from conventional hybrids in that electric motors provide 100% of the driving force, while the internal combustion engine functions solely as a generator to produce electricity.

This configuration offers several advantages:

• Minimal engine operation during driving, resulting in the lowest emissions among hybrid formats

• Stable long-distance driving capability

• Driving characteristics similar to those of pure EVs

However, REEV systems are more complex and require the largest battery capacities among hybrid vehicles.

In China, the REEV segment has been driven primarily by premium and emerging automakers. Flagship models typically feature 300 kW-class motor systems, large battery packs, and premium pricing, positioning REEVs as high-end electrified vehicles with strong growth momentum.

Why PHEVs and REEVs Are Gaining Traction — The Pressure of Global Environmental Regulation

The growing global prominence of PHEVs and REEVs is fundamentally linked to tightening environmental regulations.
Key drivers include:

• The EU’s 2030 emissions reduction targets announced in 2018

• The 2019 launch of the European Green Deal

• Strengthening CO₂ regulations across multiple major markets

These regulatory pressures have generated meaningful demand not only for pure EVs but also for hybrid technologies capable of significantly reducing emissions.

In China, unlike HEVs, PHEVs and REEVs qualify for green license plates and associated policy benefits due to their higher environmental contribution. At the same time, technological advancements in recent years have addressed long-standing challenges such as thermal efficiency and battery capacity expansion.

According to ResearchInChina’s Global and China Range Extended Electric Vehicle (REEV) and Plug-in Hybrid Electric Vehicle (PHEV) Research Report, 2024–2025, leading OEMs have continued to improve thermal efficiency, with some manufacturers introducing hybrid systems based on engines achieving thermal efficiency exceeding 45%.

Hybrid Electrification Outlook in Korea and Japan — A “Pragmatic Transition Model”

Korea and Japan share a broadly similar approach to electrification, favoring a pragmatic transition model centered on HEVs, PHEVs, and REEVs rather than an aggressive, immediate shift to BEVs.

Japan, supported by decades of HEV technological accumulation and government policies emphasizing high-efficiency powertrains, is expected to maintain HEVs as the backbone of its market, with PHEV adoption expanding only in limited segments.

Korea, after initially pursuing a BEV-centric policy, has seen renewed demand for HEVs and PHEVs amid subsidy reductions and uneven charging infrastructure development. Automakers are increasingly adopting balanced strategies that strengthen HEV, PHEV, and BEV portfolios simultaneously.

As a result, both markets are likely to retain hybrid vehicles as core electrification technologies into the early 2030s, while BEV adoption expands gradually depending on infrastructure improvements and reductions in consumer cost burdens.

EU Signals Flexibility on ICE Phaseout — A Breather for PHEV and REEV Markets

The European Union had initially pursued a complete ban on new passenger vehicle sales involving internal combustion engines from 2035. However, reports emerged on the 16th indicating that the EU is considering legislative amendments to partially ease this restriction.

Under the proposed changes, automakers could be allowed to continue producing limited volumes of ICE vehicles beyond 2035, provided specific conditions are met. Reports suggest production could be maintained at up to 10% of 2021 emissions levels, effectively postponing a full ICE exit.

This policy adjustment reflects mounting calls within Europe’s automotive industry for a more measured electrification pace. It is widely viewed as a positive signal for PHEV and REEV markets, which had faced growth constraints under the original framework.

As infrastructure gaps, pricing pressures, and consumer acceptance challenges persist during the EV transition, PHEVs and REEVs are likely to regain attention as practical interim solutions.

From a medium- to long-term perspective, the shift suggests Europe is moving from an era of “all-in electrification” toward a more realistic transition phase. While EV investment strategies will remain intact, automakers are expected to expand PHEV and REEV lineups in parallel, reshaping battery demand toward a more diversified structure rather than one dominated solely by BEVs.

China’s “Multi-Track Electrification” vs. Europe’s “Flexible Transition”

Over the past three decades, China’s NEV industry has grown through a multi-track electrification strategy that embraces both BEVs and diverse hybrid technologies. In particular, PHEVs and REEVs have emerged as key electrification options amid technological maturity and intensifying global environmental regulation.

Europe, by contrast, while maintaining its long-term goal of phasing out ICE vehicles, is increasingly introducing flexibility into its electrification roadmap. This divergence reflects differences in policy frameworks, charging infrastructure readiness, and consumer demand characteristics rather than a simple policy retreat.

Looking ahead, the global electrification landscape is unlikely to converge on a single pathway. Instead, it is expected to evolve into a regionally optimized ecosystem in which multiple electrification models coexist.

Within this context, China and broader Asian markets are likely to continue pursuing a hybrid-supported electrification structure, where hybrid vehicles play a critical role while BEV adoption expands progressively over time.