Based on the new rule of purchase tax, the survival battle in the new energy market under the vehicle range and power

In October 2025, China's MIIT, Ministry of Finance, and State Taxation Administration jointly released the new 2026-2027 NEV purchase tax exemption rules. By raising the technical requirements, they have defined new "rules of the game" for the rapidly developing new energy vehicle industry.

This policy shift isn't a "complete cancellation" of the exemption. However, by more than doubling the required pure electric range for PHEVs (including EREVs) from the original 43 km to 100 km, it directly impacts consumers' purchase costs and pushes automakers to a critical juncture for technological upgrades and product portfolio adjustments. The market space for low-range PHEVs is shrinking fast.

The pressure test of the product matrix

On the corporate side, some automakers are facing short-term challenges adjusting their lineups. Take BYD, for instance: some of its entry-level models targeting lower-tier markets have ranges concentrated in the 50-80 km zone, just below the new "red line." The base version of the Qin PLUS DM-i, using a smaller battery for about 55 km range, will lose its tax exemption eligibility after 2026. Based on the 10% statutory tax rate, buyers of a 120,000 yuan entry-level PHEV would have to pay an extra 12,000 yuan.

The impact of the new rules isn't limited to a few companies; it's a structural adjustment affecting the entire PHEV market. Currently, PHEVs with under 100 km range are mostly in the budget segment (around 100,000 yuan or less). Some of these models can only handle short trips on electricity, still relying heavily on fuel in practice. This fails to achieve meaningful emission reduction and goes against the original intent of NEV policies. The new regulation will directly speed up the elimination of such models.

For smaller automakers, the phase-out of low-range PHEVs could mean a survival crisis. Unlike leading players like BYD, these companies lack deep technical reserves and economies of scale. Getting the pure electric range up to 100 km requires heavy investment in battery system upgrades, chassis redesign, and energy efficiency improvements – costs their products' limited pricing power can't easily absorb. Even for those who manage the upgrade, the淘汰 of low-range models will trigger a chain reaction.

From the consumer's perspective, models that don't meet the new standards will be removed from the "Tax Exemption Directory" in the short term, possibly narrowing choices. However, long-term, this steers the market towards higher-quality, longer-range products. Cui Dongshu, Secretary-General of the PCA, points out that stricter standards will push companies to launch higher-performance models that meet consumer demand for long range and low energy consumption, creating a win-win for both industry and consumer upgrade. He also believes the policy change will spur concentrated car purchases before year-end, boosted by the "Silver September, Golden October" peak season and year-end sales pushes, helping Q4 achieve slight positive growth.

For pure electric models, the tech upgrade focus is squarely on energy consumption control. The new rules mandate that BEVs meet the standards set in "GB 36980.1-2025" for energy consumption per 100 km. Models with a max design weight over 3500kg must meet the limit set for the 3500kg category. This pushes carmakers to invest more in optimizing the Battery Management System (BMS), lightweight vehicle design, and reducing drag coefficients.

The new polices tie tax breaks directly to metrics like electric range, energy efficiency, and battery performance. BEVs must become more efficient, while PHEVs need to prove they're not just "able to use electricity" but also "efficient at using it." For example, passenger vehicles under 2510kg must have fuel consumption below 70% of the standard limit in charge-sustaining mode, and electricity consumption below 140% of the limit in charge-depleting mode. These multi-faceted technical requirements will force automakers to move beyond just boosting range and focus on holistic system optimization, accelerating the upgrade of hybrid technology.

Short term or long term

The policy's impact on consumers is a mix of short-term adjustments and long-term benefits. In terms of purchase cost, a "price gap between old and new models" will emerge in the short run, making the end of 2025 the "last chance" to buy lower-range models. Some new automakers, facing production delays pushing deliveries into next year, are even offering subsidies to cover the lost tax break. Overall, this new regulation is a key catalyst pushing the NEV industry from being "policy-driven" to "technology-driven."

Rough estimates by Car Research suggest that while new models launched after 2026 will face cost pressures from tech upgrades – with PHEV battery costs potentially raising prices by 3,000-8,000 yuan, and BEV R&D costs for energy efficiency also pushing prices up – the final cost to consumers might still be more favorable after factoring in the purchase tax exemption. For example, a 150,000 yuan long-range PHEV, after a 15,000 yuan tax break, would end up costing about the same as a 120,000 yuan model without any exemption.

Industry insiders note that consumer decision-making for PHEVs is also shifting. "Electric range" is becoming a basic requirement rather than just a nice-to-have. The 120-200 km range is becoming the mainstream choice, while energy efficiency, battery warranty, and smart features are emerging as key competitive differentiators. According to a PCA survey in H1 2025, 62% of potential buyers now consider a "pure electric range over 100 km" a must-have, a 35 percentage point increase from last year. For users in lower-tier markets with limited charging access, long-range PHEVs that "only need charging every few days" better suit their usage patterns. Mid-to-high-end users, meanwhile, prefer models combining long range with smart features. The market is clearly showing a trend of "demand stratification and product upgrading happening simultaneously."

Starting in 2026, the new NEV purchase tax exemption rules will serve as both a litmus test for technological prowess and a consolidation period for market dominance for leading automakers. While they face short-term cost and product upgrade pressures, the long-term outlook is that they'll strengthen their lead by upgrading their product portfolios. Cui Dongshu also believes that these raised standards provide crucial guidance for global brands competing in China and offer a forward-looking blueprint for the future technological development of the global NEV industry.

For a significant number of plug-in hybrid (PHEV) models with short electric range and energy-inefficient pure electric (BEV) models, this policy update essentially kicks off a "countdown to phase-out." The market share of low-end PHEVs and inefficient BEVs is set for a reshuffle. Smaller automakers lacking strong technical reserves might get squeezed out in this industry shake-up.