Plug-in hybrids: the end is near

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Ola Källenius, CEO of Mercedes and also President of the industry association ACEA, is lobbying for plug-in hybrids in Brussels: the European Union should "ensure long-term market access for all technologies that contribute to decarbonization". In his opinion, this also includes "vehicles with range extenders", as Källenius writes in a guest article for The Economist. Those vehicles that can drive a few kilometers electrically before the combustion engine kicks in were once considered by some to be the best of both worlds. However, electric cars are now so good that there are no or only a few factual arguments against the purely electric drive. Plug-in hybrids are actually finished.

There are two reasons why plug-in hybrids (PHEVs for short) are still being offered at all: Firstly, the car industry wants to sell these vehicles, including the combustion engines in them, at a profit before they are finally replaced by electric cars. Secondly, both Germany and the European Union are setting misguided government incentives, some of which contradict each other and lead to undignified chaos.

No punitive tariffs on PHEVs from China

Schmidt Automotive Research, for example, notes that the already low proportion of electric cars produced in China is stagnating in Europe, while there has been a significant increase in PHEVs. The BYD Seal U, for example, is selling well. BYD of all companies: the manufacturer that directly combines the production of battery cells and electric cars like no other is expanding its portfolio with plug-in hybrids. That is a paradox. "The reason for this is the punitive tariffs on electric cars from China," explains analyst Matthias Schmidt. PHEVs are not affected by these. BYD and other brands from China are therefore avoiding the punitive tariffs. It is absurd that the European Union has not recognized and closed this loophole.

Stricter utility factor devalues plug-in hybrids

Perhaps the politicians in Brussels relied on another regulation that makes plug-in hybrids less attractive from the perspective of the car industry: the tightening of the utility factor (UF) for calculating CO₂ fleet emissions. Put simply, the basis for calculating the CO₂ emissions of a PHEV is changed in such a way that either the electric range has to be significantly increased or the type-specific CO₂ value rises considerably. In order to achieve the same CO₂ value as before, newly registered plug-in hybrids from 2026 will have to have around two and a half to three times the electric range. The combination of two drive systems is therefore becoming increasingly uneconomical for the car industry. Meanwhile, battery prices are falling continuously. PHEVs no longer make economic sense.

Company car tax in Germany

A key driver for the purchase of electric cars and plug-in hybrids in Germany is the company car tax: around two thirds of new cars are registered for commercial use, and a significant proportion can be used privately. Anyone who wants to use the company car in this way must pay tax on it as a non-cash benefit. There is a flat rate for this, which is normally one percent of the gross list price per month. For plug-in hybrids, it is only half this amount. That saves a lot of money. The driver is free to drive electrically or with the combustion engine. Whether to charge or not is up to the driver. Considerations to change this have been rejected due to the fear of bureaucratic control costs.

Inconsistent quarter-percent threshold

For electric cars, only a quarter of the gross list price per month has to be taxed – if it does not exceed a certain threshold. This was 40,000 euros when this discount was introduced, was raised to 60,000 euros during the Covid pandemic and to 70.000 euros under the traffic light government. Since July 1, 2025, the threshold has been 100,000 euros. Above these values, electric cars were and are on an equal footing with plug-in hybrids; the taxable monthly flat rate is half a percent of the gross list price. To illustrate this strikingly: For a privately used company car with a list price of 60.000 euros, 600, 300 or 150 euros must be taxed as a non-cash benefit depending on the drive – depending on whether it has a combustion engine, plug-in hybrid or battery-electric drive installed.

The problem with these threshold values is that they are exclusively defined politically. A striking example is the massive BMW XM. The SUV, which is over five meters long, combines large-volume combustion engines with the ability to drive 76 to 93 km electrically in the WLTP. This car is taxed no differently than an electric BMW that costs over 100.000 euros. Why is that? Is the XM particularly environmentally friendly compared to an iX?

More electric cars, but not more plug-in hybrids

The market development in Europe is nevertheless clear, regardless of individual voices from politics and industry: according to data from Schmidt Automotive Research, the share of electric cars in 2020 was 4.7 percent in the comparative period from January to May. The figure for plug-in hybrids was 3.7 percent. Since 2021, plug-in hybrids have hovered at around nine percent, while electric cars have grown from 7.6 percent (2021) to 12.3 percent (2022) and currently 18.5 percent. Schmidt Automotive Research's full-year forecast for electric cars is 21.6 percent. Things are looking up.

Tortured motors, tired acceleration

One of the good news stories is that plug-in hybrid cars have never been as good as they are today. The technically identical VW Passat and Skoda Superb estate cars, for example, drive 100 km electrically in summer. Nevertheless, they are proof that competing electric cars such as the VW ID.7 Tourer are simply superior. It is obvious that the PHEVs are loud and seem tough in combustion engine mode compared to electric cars. Revving up sounds tortured, and what thrust there is may be brisk compared to a manual diesel from the noughties, but falls short compared to electric cars. Comfort and performance are inadequate. The editorial team now agrees internally that modern electric cars are better in every respect than anything with a combustion engine – and that includes plug-in hybrids.

Diversionary tactics out of self-interest

Mercedes, among others, is proving what electric cars can do: The new CLA has a range of almost 800 km in the WLTP. The subsequent charging pause for 70 percent of this value is 20 minutes. Yes, in reality it is less, but if only 500 of 800 km remain in bad weather, the result changes little. In other words: even under these conditions , you can drive 850 km with a break of 20[ ]minutes – or 1200 with a break of 40 minutes.

The fact that Ola Källenius is loudly advocating alternatives to the electric car is probably a diversionary tactic. Mercedes has made several strategic mistakes in its model policy: The popular E-Class is not available as an electric car, but only as a PHEV. The EQE, on the other hand, is not available as an estate, and the design has not worked either in China or in Europe. As a result, it will not receive a facelift with an 800 instead of 400-volt system, but will be discontinued without replacement at the end of 2026. The new E-Class W215 will be brought forward to 2027 and will finally go electric with a traditional design language. Mercedes will have to bridge the gap until the CLA, the electric GLC presented at the IAA, the new E-Class and other electric cars arrive. This is the only way to understand Källenius' statements. They are propaganda until the day the portfolio is converted – and that is representative of the majority of the car industry.

(afl)