China Imposes New Tax Rules on Hybrid Vehicles: PHEVs Must Now Exceed 100 km Electric Range

The new policy, jointly announced by the Ministry of Industry and Information Technology, the Ministry of Finance, and the State Taxation Administration, marks a pivotal moment for China's automotive industry. The updated requirements specify that PHEVs must now offer an electric-only range that more than doubles the previous minimum of 43 kilometers. This adjustment is part of a broader strategy to enhance the quality and sustainability of NEVs, pushing manufacturers towards innovation and higher standards. Cui Dongshu, Secretary General of the China Passenger Car Association, emphasized the alignment of these new standards with the rapid improvements in NEV technology, urging companies to increase research and development efforts.

For pure electric vehicles, the new rules mandate that energy consumption must not exceed the limits outlined in the national standard GB 36980.1-2025, which is approximately 11% stricter than prior standards. The policy also includes specific guidelines for plug-in hybrids, requiring that their fuel consumption be less than 70% of the standard limits for vehicles under 2,510 kg and less than 75% for heavier models. Additionally, electric energy consumption must not exceed 140-145% of the standard limits, depending on vehicle weight. These stringent measures highlight the government's focus on reducing emissions and increasing efficiency across vehicle categories.

This policy change is set to impact the market significantly. Industry analysts estimate that around 40% of current plug-in hybrids do not meet the new 100 km requirement. As a result, manufacturers may need to expedite sales of non-compliant models before the rules take effect. While premium hybrids like the Aito M5, BYD Tang DM-i, and Li Auto L8 already meet the new standards, entry-level models such as certain variants of the BYD Qin Plus and Geely Galaxy A7 might struggle to qualify for tax exemptions in 2026. These models will need to undergo considerable upgrades to remain competitive.

The policy's implementation timeline is set for January 1, 2026, providing a window for manufacturers to adjust to the new requirements. Vehicles listed in the tax exemption catalogue as of December 31, 2025, will be automatically transferred to the 2026 catalogue if they meet the new standards. Manufacturers of non-compliant vehicles must submit applications by December 12, 2025, to be considered for the first 2026 tax exemption catalogue. This timeline allows manufacturers a critical period to enhance their product offerings and align with the new regulations.

The broader implications of these changes are profound, as they signal China's strategic shift from merely expanding NEV sales to focusing on high-quality development. By raising the bar, the government aims to eliminate outdated technologies and promote the adoption of cutting-edge innovations. This move is expected to catalyze further investment in the NEV sector, fostering a competitive environment that encourages technological breakthroughs and enhances China's leadership in the global electric vehicle market.

As China continues to lead the way in NEV adoption, these new regulatory measures will likely influence global standards. The emphasis on longer electric ranges and improved fuel efficiency sets a precedent that other nations might follow, aligning with global efforts to reduce carbon emissions and combat climate change. The success of this policy could serve as a model for future regulations, encouraging other countries to adopt similar standards and accelerate the transition to sustainable transportation solutions worldwide.