Gf Securities has released a research report stating that several factors are converging to accelerate the penetration rate of HEVs in the domestic passenger vehicle market. These include the phase-out of purchase tax incentives for PHEVs on the policy front, established consumer recognition nurtured by Japanese brands on the demand side, and the launch of new "Chinese Smart HEV" models on the supply side. Chinese brand HEVs are breaking through the technical barriers of Japanese hybrid systems with their "oil-electric co-drive" approach, demonstrating significant advantages in economic efficiency and intelligent features, which points to vast global growth potential. The bank suggests focusing on Chinese automotive brands with forward-looking HEV technology layouts and the capability for international expansion. The main views of Gf Securities are as follows:
What is the growth potential for HEV penetration in the domestic passenger vehicle market? The combination of PHEV purchase tax incentive phase-outs, established Japanese brand consumer awareness, and new "Chinese Smart HEV" model launches is expected to rapidly increase domestic HEV adoption. The bank forecasts domestic HEV penetration rates of 6%, 8%, and 12% for 2026, 2027, and 2028, respectively. The penetration rate is projected to double in 2026, primarily due to new HEV supply replacing PHEV models with under 100km range that will exit the market that year (sales of such PHEVs were approximately 795,000 and 760,000 units in 2024 and 2025, respectively). A further acceleration in domestic HEV penetration is anticipated by 2028, mainly because: (1) PHEVs will no longer enjoy purchase tax incentives starting in 2028, strengthening the HEV's advantage in acquisition cost; (2) HEVs will continue to convert users from the traditional internal combustion engine (ICE) vehicle base, breaking through the final "fortress" of ICE vehicles by not requiring changes to consumer habits and offering superior fuel efficiency.
Reviewing the global HEV passenger vehicle market reveals an oligopolistic structure, with Toyota holding over a 50% share and capturing industry super-profits. According to Toyota's financial reports, HEV models accounted for 40.9% of its sales in 2025, a year-on-year increase of 0.6 percentage points. The gross margin for Toyota's HEV models is significantly higher—by 4-5%—than that of its ICE vehicles. This substantial super-profit is largely attributable to Toyota's dominant global HEV market share exceeding 50%, allowing it to benefit from excess industry earnings under this oligopolistic market structure.
Outlook for International Expansion: Chinese brand HEVs are breaking Japanese technical barriers with their "oil-electric co-drive" philosophy, aiming to reshape the global hybrid landscape with "greater fuel efficiency and enhanced intelligence." (1) Market Potential: The static potential market for Chinese brand HEVs overseas in 2025 (excluding the US, Japan, and South Korea) is approximately 4.47 million units. A core area of focus is breaking into the European market (HEV sales in Europe reached 4.005 million units in 2025, accounting for 90% of the aforementioned potential). (2) Market Share: The overseas end-user market share for Chinese brand HEVs in 2025 (excluding the US, Japan, and South Korea) was 3.3%. SAIC's MG brand has already validated the pathway for HEV export success in the European market. (3) Breakthrough Path: Chinese automakers are circumventing Japanese hybrid patent barriers with their "oil-electric co-drive" design philosophy, offering distinct advantages in economy and intelligence. While Toyota's HEV design is "oil-dominant," Chinese automakers' "co-drive" approach, utilizing dual-motor series-parallel architectures, achieves complete decoupling of the engine and motor, balancing fuel consumption and performance. This design yields higher fuel-saving rates and stronger power performance for Chinese brand HEVs. According to the bank's calculations, using Geely's Xingyue L as an example, its HEV version saves approximately ¥24,000 in total lifecycle costs compared to its ICE version, and about ¥18,000 compared to Japanese SUVs in the same class, highlighting a significant total cost of ownership advantage. Furthermore, the "large battery + high voltage" configuration of Chinese brand HEVs supports a significantly higher level of intelligence than Japanese counterparts, enabling high-computing power autonomous driving platforms and vehicle-to-load (V2L) capabilities.
Risk warnings include a potential downturn in industry sentiment, policy stimulus effects falling short of expectations, and intensifying industry competition.
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