“BMW and Mercedes-Benz are becoming harder to sell,” a former salesperson from China Grand Automotive Services told 36Kr. Last year, his dealership made a profit of RMB 12 million (USD 1.7 million), but since the beginning of this year, nearly every dealership in his vicinity has been losing around RMB 1 million (USD 140,000) per month.
He observed that foot traffic has fallen to just one-third of last year’s numbers. Internally, the sales decline is being attributed to two factors: the rise of new energy vehicles (NEVs) and difficulty attracting loyal customers, many of whom are put off by BMW’s redesigned models.
Traditional luxury car brands like BMW, Mercedes-Benz, and Audi—referred to collectively as the BBA—and joint venture automakers are increasingly feeling the pressure from rising Chinese carmakers that are chipping away at their market share.
In the first half of 2024, Porsche and SAIC-GM saw sales plummet by over 30% year-on-year. Honda is considering production cuts at its Chinese plants, potentially shutting down entire lines.
Range-extended electric vehicle (REEV) makers such as Aito and Li Auto are aggressively targeting the luxury market that brands like BBA once dominated. Meanwhile, plug-in hybrid electric vehicles (PHEVs) from companies like BYD are quickly becoming the primary alternatives to joint venture models.
A person close to BYD told 36Kr that “BYD’s new 2025 models are aimed squarely at challenging Japanese and German brands.”
Amid the NEV wave, Chinese automakers first found success with pure electric vehicles and are now fiercely competing with international automakers through hybrid models. Companies like Xpeng Motors, IM Motors, Zeekr, Aion, and Xiaomi—initially focused on pure EVs—are now expanding into PHEVs with larger battery capacities.
In 2023, sales of Chinese PHEVs surged 82.5% year-on-year, compared to just 20.8% growth for EVs. The PHEV growth rate is almost four times faster, forcing joint venture brands to quickly pivot.
Several high-end automakers have pinned their hopes on larger-battery PHEVs. A source close to Volvo’s leadership told 36Kr that the company plans to introduce long-range hybrid models with at least 200 kilometers of pure electric range to meet China’s growing demand.
Toyota’s president, Koji Sato, also announced that the company would develop PHEVs with a pure electric range of at least 200 kilometers, doubling the current range of around 100 kilometers in Toyota’s hybrid car lineup.
Luxury brands like Jaguar Land Rover and Mercedes-Benz have urged their global headquarters to consider launching range-extended models in China, arguing that these vehicles meet market demand and are easier to develop.
For over two decades, multinational automakers have dominated China’s automotive market. But as the market evolves, joint venture products and technologies appear to be losing their edge. Rising costs and lagging technology have forced these brands to bet on large-battery PHEVs as one of their last chances to boost sales in China.
Driven by a supply chain evolution
PHEVs can run on either electric motors or internal combustion engines, while REEVs rely on engines solely to generate electricity for the motor. Regardless of the driving mechanism, electric-only driving is becoming more common due to its cost savings and smoother experience.
Li Auto has increased its pure electric range by 34% in the past three years, and Leapmotor disclosed that 92% of its REEV owners primarily rely on electric mode, with only 8% on fuel mode. Even PHEVs with direct drive technology are following the trend. Yang Dongsheng, head of BYD’s new technology institute, revealed that BYD’s DM-i Super Hybrid achieves over 80% of its driving in pure electric mode.
In response, battery sizes for hybrid vehicles are increasing from 40 kilowatt-hours to nearly 60 kWh, although long charging times—around 40 minutes—are a bottleneck. Battery makers have sensed the demand and are developing fast-charging solutions for hybrid vehicles. Contemporary Amperex Technology (CATL)’s Shenxing battery, which supports 3C fast charging and offers 300 kilometers of pure electric range, addresses the growing need for large-battery hybrid caars. Svolt’s 800V “Dragon Armor” battery, which can charge at a 4.2C rate, is slated for production by 2025.
In short, fast-charging capabilities that began appearing in pure EVs in 2023 are now poised to power the hybrid car market.
Beyond the battery, the engine is another key component that determines a hybrid vehicle’s range.
The battery dictates the pure electric range, while the engine’s energy conversion efficiency is the key to fuel economy. The higher the thermal efficiency, the lower the fuel consumption for the same power output.
To achieve better fuel efficiency, hybrid engines are designed to take in less air, extend combustion time, and burn fuel more thoroughly, significantly boosting thermal efficiency compared to standard internal combustion engines.
However, in the automotive supply chain, engines are rarely sourced from competitors, as doing so would expose the buyer’s chassis design and product plans.
For newer automakers like Li Auto and Leapmotor, which lack extensive experience with engine development, choosing the range-extender route enables them to achieve long electric ranges without requiring new breakthroughs in engine technology.
Hybrid engines must be capable of directly driving the vehicle and providing different power outputs across a variety of conditions, maintaining high efficiency at all speeds and loads.
In contrast, range-extender engines are designed to generate electricity efficiently in specific conditions, rather than providing power under all circumstances. As a result, their design and control systems are simpler.
Dongan Auto Engine, a subsidiary of Changan Automobile, has become a rising star in the range-extender market, supplying engines to over ten automakers, including Voyah, Leapmotor, and Neta. Xpeng Motors’ range-extender was also sourced from Dongan. According to its 2023 report, Dongan has held the top market share for range-extender engines in China for three consecutive years.
Whether through REEVs or PHEVs, automakers are steadily pushing toward larger battery capacities, which have become key to expanding sales. “Large-battery hybrid vehicles offer an attractive upgrade for traditional fuel car owners,” an industry veteran told 36Kr. “They provide an almost entirely enhanced experience, without any real downsides.”
Jiang Wen, a senior R&D executive at Xpeng Motors, told 36Kr that internal data shows EV penetration is advancing rapidly in some regions, while in others, it lags behind. “In those areas, range-extended vehicles may be the best solution.”
A delicate balance with each change
However, developing large-battery hybrid cars involves more than mastering engine and battery technology. It requires significant structural changes to the vehicle itself. Increasing battery capacity also means an expansion in battery size, and even minor structural changes can affect the entire system.
Hybrid vehicles have exhaust systems, so their battery packs tend to be narrow. Raising the battery height could reduce cabin space, especially for the driver’s legroom. Automakers and battery manufacturers are working to reshape battery packs to better fit vehicle designs. The increasingly popular short blade battery allows for higher capacity and better integration without interfering with exhaust systems.
However, developing new battery packs for large-battery hybrid vehicles is a long process, requiring extensive testing for both the battery and the entire vehicle. A platform for such vehicles must accommodate key components like engines and drive motors. In a vehicle’s limited space, this requires a high degree of component integration.
For instance, BYD’s fifth-generation DM system integrates seven components into one power domain control unit, freeing up space and reducing energy loss.
Thus, increasing the battery capacity for hybrid cars requires adjustments to nearly every component linked to the battery. To meet automotive standards, these changes must undergo rigorous stability testing.
This level of innovation requires not only new product development but also significant shifts in corporate culture and supply chain management—a considerable challenge for multinational automakers. “When it comes to new technology, we work with emerging automakers first, then domestic brands, and only finally with joint venture companies. Joint ventures need approval from their overseas headquarters, which slows decision-making,” a Chinese supplier told 36Kr.
Luxury car brands are running out of time
Slow decision-making processes of overseas headquarters have become a constraint for multinational automakers. Developing large-battery hybrid vehicles is no longer just a technical issue but also a power dynamic between Chinese and foreign companies. Volvo, despite being majority-owned by Geely, still relies on its Swedish team for model development. However, it has begun using Geely’s technology platform to speed up hybrid development.
For luxury car brands like Mercedes-Benz and BMW, hybrid platforms must be developed by their overseas headquarters, complicating the process. “Global automakers are struggling in China because foreign companies are slower to adopt new technologies like smart cabins and autonomous driving,” a source told 36Kr. Most global brands design their models for worldwide markets, making it difficult to create products tailored to China.”
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Some representatives from luxury brands remain optimistic, believing progress is being made, albeit slowly. “It takes time for recognition to build,” one said, citing how Chinese automakers only launched range-extended models recently.
However, market performance is a powerful persuader. Four years ago, Volkswagen dismissed PHEVs as a transitional technology. After seeing 84.7% growth in China and 54% in the US last year, the company has announced plans to invest more in PHEVs.
The competition is fierce, and joint ventures must act quickly to stay competitive. “Large-battery hybrid technology is one of our last chances to remain competitive. BBA brands still have strong recognition, but it’s a matter of who seizes the opportunity first,” a senior executive at a joint venture automaker told 36Kr.
SAIC Volkswagen’s general manager, Jia Jianxu, once said that joint venture automakers have only two years left to make their mark. For many multinational automakers in China, it’s now a case of “go big or go home.”
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Han Yongchang and Tian Zhe for 36Kr.