In China, the range extender segment is booming again

According to China passenger car wholesales data, sales of Extended Range Electric Vehicles (EREVs) surged by 218% YoY in 2021, accounting for 16% of the combined EREV and PHEV market with the 2020 figure being 13%. Li Auto (Li Xiang) is the dominant player with an 86% share of EREV sales in 2021 and monthly EREV sales in excess of 10k units.

More players have entered the EREV space in China’s passenger vehicle market. In Q4 2021, Voyah, a sub-brand from Dongfeng Motor Corporation which is focused on high-end BEV and EREV models, entered the market. SERES, with Huawei, saw sales of its SF5 EREV crossover model ramp up in H2 2021. And, interestingly, the pace of EREV market entrants is accelerating with more brands and models being announced this year (see the charts below).

EREV technology is not new by any means. The history of EREV dates to the 19th century when series hybrids were developed. The internal combustion engine (ICE) was used solely to generate electricity, which powered a wheel hub electric motor. Limitations of technology at the time meant that a mass market did not develop, and pure electric then pure ICE cars came to dominate.

Though revived by several brands, BMW being one with its i3 REx model, there have been few true EREV models until recently. GM’s Volt and Nissan’s e-Power models are often described as EREVs, but the former is a plug-in hybrid (and was not sold in China) while the latter is not a plug-in model and hence does not fit our definition of an EREV (which is a BEV with auxiliary ICE motor to provide extra range via a generator). BMW’s i3 was the first to launch in the China market, though private demand was poor due to its high price, low range, and lack of familiarity with the technology. Most sales were to a NEV vehicle rental platform. 

So, why did EREV sales surge in 2021? The primary driver was incentives offered by central and local governments, which meant that both the New Energy Vehicle (NEV) subsidy and free license plates were available to EREV buyers, though the license plate offer may be scaled back in some cities. As NEVs, EREVs have been eligible for a government subsidy for some time but for plug-in car users, range anxiety is a key point and EREV overcomes this issue. An increasing EREV model choice supported by strong incentives has led to greater sales. Cost-wise, the fact that the ICE engine is used solely for charging and not for driving the wheels means it can be technically simple compared to an engine for a pure ICE or a PHEV and hence cheaper. With such advantages, EREV has enjoyed rapid growth. According to insurance data, EREV distribution is focused on cities that impose restrictions on private cars:

Demand in these fifteen cities accounted for 65% of all EREV sales, with Li Auto bringing a new dimension to the EREV segment. The latest information suggests that Neta Automobile, which has focused on BEVs so far, will launch EREVs in 2022. Niutron, another emerging brand, will launch an SUV equipped with EREV technology.

Why the rush to EREV in 2022? The success of Li Auto has demonstrated what can be achieved but a crucial point is the severe price inflation afflicting battery raw materials. Compared with BEVs, EREV batteries can be downsized, the price saving offsetting the expense of a more complex powertrain and so cars can be offered at a lower price point. 

The PHEV segment has been dominated by BYD, and there is room for a technological breakthrough to break the monopoly that BYD holds in the non-BEV plug-in space. EREV is a small player but has strong potential. That is why several brands are focused on it and aspire to be EREV leaders in the future. Under the pressure of the dual credit policy and China’s 2060 carbon net-zero target, both EREV and PHEV are transitional technologies – they are not zero-emission vehicles (ZEVs). Our forecast suggests that the market for these technologies will peak circa 2025 before declining.