Global EV Market Trends Shaping Adoption and Profitability

These studies cover different vehicle cohorts and methodologies, but they point in the same direction. The emissions benefits attributed to PHEVs can be substantially overstated when charging behaviour and real-world driving differ from certification assumptions.

There are three main reasons for this gap.

• Infrequent charging: Some owners do not charge their vehicles regularly, particularly when they lack access to home or workplace charging. The vehicle consequently relies more heavily on its combustion engine.
• Longer journeys: A PHEV may operate electrically for short daily trips but use its engine extensively on longer journeys. If the actual share of electric driving is lower than assumed in certification tests, fuel consumption rises.
• The weight of two powertrains: PHEVs carry a battery and electric motor alongside a combustion engine and its associated hardware. Once the battery is depleted, the vehicle must carry this additional mass using its combustion engine, which can reduce efficiency under certain driving conditions.

This does not mean PHEVs cannot save fuel. Drivers who charge frequently and complete most of their journeys within the vehicle's electric range can achieve meaningful savings. The concern is that average fleet performance may be substantially worse than official figures imply. The distinction matters because regulations, incentives, and consumer decisions often depend on certified emissions and fuel economy figures.

3. Tighter emissions rules could change the economics of PHEVs

The real-world emissions gap creates a challenge for regulators. If PHEVs receive favorable emissions values despite consuming considerably more fuel in normal use, manufacturers may receive greater regulatory benefits than their vehicles actually deliver. Europe has already begun addressing this issue. According to the European Commission, changes to the utility factor used in PHEV certification began taking effect in 2025, with a further adjustment scheduled for 2027. The objective is to make official emissions calculations better reflect real world driving and charging behaviour. The latest ICCT findings suggest that the gap remains significant even after the initial adjustment. This could increase pressure for further changes to testing procedures and fleet emissions calculations.

Four regulatory consequences are possible.

• More realistic, certified emissions values. Revised utility factors could increase the official CO2 emissions assigned to many PHEVs. This would reduce the regulatory benefit associated with each vehicle, particularly for models with limited electric range or low expected electric usage.
• Greater use of real-world monitoring. Regulators could place greater emphasis on onboard fuel consumption monitoring and verification of actual performance. This would reduce the scope for emissions calculations to rely on optimistic assumptions about charging frequency.
• Potential changes to incentives and taxation. Governments could reconsider purchase subsidies, company car taxation, or other benefits linked to certified emissions. PHEVs that deliver limited fuel savings could receive less favorable treatment than BEVs, depending on the policies adopted.
• Higher pressure on manufacturer fleet compliance. If PHEVs deliver less regulatory benefit than expected, automakers may need to sell more BEVs or improve the electric range and efficiency of their PHEVs to meet fleet emissions requirements.

The direction of travel is towards more evidence-based emissions accounting. However, it is important to distinguish between a vehicle meeting its technical certification requirements and the contribution it makes towards a manufacturer's fleet emissions target. Changes to utility factors can affect the latter without automatically making every PHEV non-compliant. For automakers, the commercial implications could be significant. A PHEV programme developed around favourable certification assumptions may become less attractive if its regulatory benefit falls while development and production costs remain high.

4. Will BEVs gain share at the expense of PHEVs?

Tighter PHEV emissions accounting would strengthen the regulatory case for BEVs, which have no tailpipe CO2 emissions during driving. However, the resulting change in sales mix will depend on vehicle prices, charging access, fuel prices, incentives, and consumer preferences.

China: BEVs are already gaining ground

According to the IEA, BEVs accounted for nearly 70% of electric car sales in China in 2025. Continued improvements in battery technology, charging infrastructure, and vehicle affordability could further narrow the appeal of PHEVs. However, PHEVs and extended range electric vehicles are likely to retain customers who value long distance flexibility or cannot charge regularly. Their future will depend on whether they offer a meaningful ownership advantage over comparable BEVs.

Europe: emissions regulations could accelerate BEV adoption

Europe is the market where tighter PHEV emissions accounting could have the clearest direct regulatory effect. Manufacturers selling large numbers of PHEVs may need to increase BEV sales if the regulatory benefit attributed to their plug in hybrids declines.

This could encourage more affordable BEVs, longer electric ranges, and changes to vehicle portfolios. Some manufacturers may also reduce their reliance on PHEVs if the development and compliance costs no longer justify their contribution to sales.

United States: policy uncertainty could limit the shift

The US market demonstrates how quickly demand can change when financial incentives are withdrawn. According to the EIA, BEV market share reached a record 12% in September 2025, immediately before federal clean vehicle tax credits expired. It subsequently fell below 6% in each of the remaining months of the year.

5. The next phase of EV adoption will be judged on real world performance and profitability

The EV market continues to grow globally. According to the IEA, electric car sales exceeded 20 million units in 2025, supported by improving vehicle affordability, wider model availability, and emissions regulations in several major markets. However, the next phase is likely to be more demanding for both manufacturers and policymakers. BEVs have a clear advantage in tailpipe emissions and are becoming more competitive as battery costs and vehicle prices improve. PHEVs retain a role for drivers who charge regularly and need the flexibility of a combustion engine, but their long term position will depend on genuine fuel savings and the way regulators account for real world emissions.

For Chinese automakers, the challenge is financial rather than purely technological. Manufacturing scale, supply chain integration, and export growth remain important advantages. Yet the combination of price competition, margin compression, excess inventory, and questionable sales practices in parts of the industry means that headline sales volumes provide an incomplete picture of business health.

Three questions will increasingly determine the direction of the industry:

1. Do EVs and PHEVs deliver the fuel savings and emissions reductions expected in everyday use?
2. Can customers afford EVs without relying excessively on government incentives?
3. Can manufacturers sell BEVs and PHEVs at prices that support sustainable financial returns?

The companies best placed to succeed will be those that combine credible emissions performance, competitive ownership costs, genuine customer demand, and disciplined financial management.

In the next phase of the EV market, sales growth alone will no longer be enough. Real world performance and sustainable profitability will matter just as much.

Explore the Electric Vehicle Market: https://www.marketsandmarkets.com/Market-Reports/electric-vehicle-market-209371461.html