Automotive Market Sales of Internal Combustion Engine Models Rise Again in China

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Asia Waypoint

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Some electric vehicle owners in China are disappointed with their cars: The intense competition in the domestic automotive market is undermining residual values. Pure internal combustion models are in demand again.

Vehicles with internal combustion engines are currently experiencing a comeback in China. In August, 900,000 units were sold, representing a 13.5 percent increase compared to the same month a year ago, according to figures from the manufacturer association CAAM in Beijing. This is not simply a statistical outlier. August marked the third consecutive month in which sales of ICE (Internal Combustion Engine) vehicles rose again in the world's largest automotive market.

The Chinese automotive newspaper Zhongguo Qiche Bao recently addressed the question of whether this is a short-term setback for electric vehicles or a long-term comeback for combustion engines "after market adjustments."

Transformation Weakens

For a long time, it seemed that the rapid growth of electromobility in China was unstoppable. When combining electric vehicles and hybrids, which is commonly referred to as "New Energy Vehicles" or NEVs in China, new registrations have reached approximately 50 percent. The transition to electrification is thus in full swing and, according to many observers, is expected to continue.

“Short-term, gasoline vehicles will still retain some market share and coexist alongside New Energy Vehicles,” says Zhang Ruifeng, who, as the secretary-general of an industry alliance for electric and hybrid vehicles, has a strong interest in the transition. “However, in the long run, as NEV drive technology progresses and the market matures further, the share of gasoline vehicles will gradually decrease.”

Car Owners Are Disillusioned

However, this transformation towards electromobility, which is still supported by many voices in China, is likely to proceed more slowly than some had anticipated. A significant reason for the growing popularity of vehicles running on gasoline or diesel is the disillusionment of many drivers regarding their electric cars.

The so-called early adopters—the pioneers of the switch to battery-powered cars—“chose electric vehicles mainly due to lower operating costs, but over time, their hidden costs have become increasingly apparent,” writes the automotive newspaper.

Competition Leads to Depreciation

Among these hidden costs is the greater depreciation compared to traditional cars, which are still regarded as more solid than the new vehicles. Three years after purchase, the residual value of pure electric vehicles in the People's Republic stands at 30 to 40 percent, significantly below the 50 to 60 percent typical for internal combustion engine vehicles.

A fierce price competition among manufacturers of electric and hybrid vehicles has exacerbated this issue from the consumers' perspective. As new, better-equipped NEVs become increasingly affordable, the resale value of their used cars declines.

Costs Over the Lifecycle

The reality shock is particularly intense for drivers who switched to electric vehicles in an early wave eight years ago. Once the batteries become too weak and need to be replaced, it can sometimes cost more than the old car is worth altogether.

Many customers did not consider this at the time of purchase, but they are now more frequently pulling out their calculators when deciding for or against an electric vehicle. “After calculating the total cost of vehicle ownership, many consumers find that the lifecycle cost advantage of pure electric vehicles is no longer present—directly influencing their buying decisions,” writes the automotive newspaper.

Government Support is Declining

Another reason for the current comeback of internal combustion engines is a hesitation from the central government in Beijing and local authorities to continue promoting electric vehicles with various measures. More and more cities are currently considering ending the preferential allocation of license plates to buyers of new electric vehicles.

In China's politics and media, calls for a fairer "parity between gasoline and electricity" in the automotive industry are growing louder. After a phase of great enthusiasm for New Energy Vehicles (NEVs), many local governments are realizing that the construction of traditional combustion engines supports numerous jobs in their regions. "The dominant position of NEVs is weakening," says Ma Jianting, head of a large car dealership in Ningbo.

Positive Trend for German Automakers?

For the German automotive industry, this comeback of internal combustion engines (ICE) is a welcome breather. They have long clearly dominated the Chinese market for combustion vehicles through joint ventures with Chinese state-owned enterprises, but have come under significant pressure in recent years. Sales of electric vehicles from the German-Chinese joint ventures have yet to gain momentum.

In the first six months of this year, FAW-Volkswagen and SAIC-Volkswagen jointly sold nearly 960,000 cars. For SAIC-Volkswagen, strong sales of the Lavida and Passat models, each exceeding 100,000 units, contributed to this result, representing a 2.3 percent increase in total sales year-over-year.

At FAW-Volkswagen, it was the older models Sagitar and Magotan that saw an overall improvement in half-year sales of 3.5 percent compared to the same period last year. SAIC-GM and GAC-Toyota also experienced an upswing, while Dongfeng-Nissan could not benefit from the new trend.

Development Budget for Internal Combustion Engines

At the same time, competition with Chinese automakers in the ICE segment is becoming more intense. The Chinese have been able to increase their sales of internal combustion engine vehicles significantly in some cases since the beginning of this year. For example, in February of this year, sales of Geely's "Xingyue L" model grew by about 160 percent year-over-year.

It's no surprise that many CEOs and chairpersons of Chinese automotive companies have rediscovered their affinity for internal combustion engines. "Geely will not abandon the market for gasoline vehicles. Gasoline vehicles remain a very important part of the market, accounting for more than 50 percent of total sales. Geely will continue to increase investment in this area," said Gan Jiayue, CEO of Geely Auto Group.

Wu Huixiao, the CTO of Great Wall Motor, also announced that the company will continue to invest in the internal combustion engine sector. This is due to the significant number of users of gasoline-powered vehicles at home and the global market, where the transition to electromobility is progressing more slowly than in China.

None of the major Chinese automotive companies has stopped investing in the research and development of internal combustion engines.

Improved Efficiency

At the recent "2025 Teda Automotive Forum," another reason for the renewed popularity of ICE technology was discussed. Technological breakthroughs in modern gasoline engines are expected to raise thermal efficiency to an average of 45 to 47 percent by 2025 and could exceed 50 percent by 2030. Chinese observers believe that, when combined with the use of CO₂-neutral fuels such as methanol and hydrogen, this could lead to a significant reduction in emissions.

Many manufacturers of traditional internal combustion engine vehicles have invested substantial amounts of money in software features over the past few years, such as smart cockpits, assistance systems, and other functionalities. This is gradually undermining the perception among car buyers that electric vehicles are "modern" and internal combustion engines are "outdated." This trend is referred to in industry circles as "parity in intelligence."

China's Automotive Industry Looks to Germany

As internal combustion engines (ICE) are still needed for plug-in hybrids and many drivers fear running out of energy outside major cities, the ramp-up of Chinese electromobility is currently significantly slowing down. Chinese media are extensively covering Porsche's decision to electrify its product portfolio at a slower pace and the calls from Chancellor Friedrich Merz to take action against the EU's adopted zero-CO₂ limit for 2035.

“Vehicles with internal combustion engines are experiencing a resurgence,” summarizes the current trend according to the Chinese automotive newspaper.