Rising battery costs and softer car demand are expected to reshape China’s electric-vehicle landscape in 2026, with analysts forecasting renewed momentum for plug-in hybrids as price-sensitive consumers reconsider fully electric models.

Material cost inflation, particularly in lithium, is narrowing the affordability advantage that battery-electric vehicles have built over recent years. Analysts estimate that BEVs could now be as much as 20 percent more expensive than comparable plug-in hybrid electric vehicles, widening the price gap at a time when consumer demand is cooling.

Lithium price pressures alone could add up to 3,800 yuan to the production cost of a midsize BEV, compared with roughly 2,000 yuan for a PHEV, according to recent industry research. The higher cost base arrives as fiscal incentives begin to unwind, creating additional strain for manufacturers and buyers alike.

Policy Shifts Add to Market Pressure

China’s phased withdrawal of purchase tax exemptions is compounding the cost challenge. Buyers who were exempt from a 10 percent purchase tax last year are now subject to a 5 percent levy, with the full rate scheduled to return by 2028.

The combined impact of retreating stimulus and commodity inflation is expected to weigh on overall vehicle sales. Forecasts from major financial institutions point to a decline in mainland passenger car sales in 2026, citing overcapacity and reduced fiscal support.

Analysts note that middle- and lower-income consumers remain particularly sensitive to price fluctuations, which could temporarily dampen BEV sales growth even as long-term electrification trends remain intact.

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Hybrids Regain Share Amid Cost Concerns

Electric vehicles in China include BEVs as well as plug-in hybrids and extended-range electric vehicles, which combine batteries with small internal combustion engines to generate additional power.

Recent sales data suggest a modest shift in momentum. In January, Chinese automakers sold 348,000 BEVs, down 17 percent year on year and 56 percent from December. BEVs accounted for 58 percent of total EV sales, compared with 62 percent for 2025 as a whole.

Hybrid models recorded 248,000 deliveries, down year on year but increasing their market share to 42 percent from 39 percent last year. The data indicate that while overall EV sales remain strong by global standards, hybrids are regaining relative ground.

Range Anxiety and Practical Considerations

Range anxiety continues to influence purchasing decisions despite improvements in charging infrastructure. For drivers who frequently travel long distances between cities, hybrids offer extended range without reliance solely on charging networks.

Manufacturers such as BYD have capitalised on this demand by promoting plug-in hybrids capable of travelling more than 2,000 kilometres on a combined tank and charge. Entry-level hybrid models remain competitively priced, reinforcing their appeal in a cautious consumer environment.

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Long-Term Electrification Still Intact

China remains the world’s largest EV market, accounting for roughly 70 percent of global new EV sales in 2025. While higher battery costs and policy adjustments may create a short-term slowdown in pure electric adoption, analysts largely view the shift toward hybrids as cyclical rather than structural.

The broader trajectory toward low-emissions mobility remains supported by domestic manufacturing scale, technological innovation and infrastructure investment. However, in the near term, cost pressures and consumer pragmatism are likely to rebalance the mix between battery-electric vehicles and hybrids in the world’s most important EV market.

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