When high costs and limited charging convenience deter consumers from embracing pure electric vehicles, what strategic direction should automakers take?

The global new energy vehicle market is undergoing significant structural shifts, marked by the slowdown in pure electric vehicle sales growth and the rise of extended-range electric vehicles (EREVs). EREVs' unique oil-electric dual-energy feature allows them to maintain pure electric drive capabilities for daily commutes while providing extended range through fuel power generation for long-distance travel, thus achieving unlimited range and alleviating range anxiety.

EREVs are gaining traction among consumers due to their low operating costs and comprehensive range. A McKinsey survey conducted in late 2024 among new car buyers in the US, Germany, and the UK revealed that 18% of respondents in the US would consider purchasing an EREV if given the option; in Germany and the UK, these figures stood at 15% and 13%, respectively. Furthermore, two-thirds of these potential buyers indicated that without EREVs, they would opt for internal combustion engine (ICE) vehicles or hybrid vehicles. This suggests that EREVs could incentivize more ICE vehicle owners to switch to electric driving.

A key consumer group for EREVs comprises existing electric vehicle owners who are dissatisfied with insufficient charging facilities and range and are considering reverting to fuel vehicles. McKinsey notes that 46% of American EV owners and 19% of European EV owners are contemplating such a switch.

The survey also uncovered that luxury brand car owners show greater interest in EREVs compared to mass market brand owners. Additionally, current owners of large cars and SUVs exhibit slightly higher interest in EREVs than small car owners.

At the policy and regulatory level, EU regulations mandate that all new cars sold must be zero-emission vehicles by 2035, implying that EREVs can be sold until 2034. Automakers must weigh the development timeline for EREVs and assess whether sufficient profits can be garnered within this limited timeframe to justify investments. Compared to plug-in hybrid vehicles, EREVs' powertrain system offers greater adaptability for future advancements.

Unlike the EU, the US does not impose zero-emission requirements on new car sales. Instead, the US Environmental Protection Agency ties compliance incentives to electric driving range, suggesting that EREVs may outperform plug-in hybrids in compliance standards. For instance, EREVs with an electric driving range of at least 70 miles (about 113 kilometers) can receive a 65% compliance incentive, whereas plug-in hybrids with a range of 25 miles (about 40 kilometers) only qualify for a 30% incentive.

Furthermore, while the California Air Resources Board's (CARB) Advanced Clean Cars II rule stipulates that all new cars sold must be 100% electrified by 2035, one-fifth of these vehicles can be plug-in hybrids or EREVs. From a regulatory perspective, the US market offers the broadest new opportunities for EREVs.

In summary, EREVs are emerging as a potential solution to alleviate range anxiety and cost concerns among fuel vehicle, hybrid vehicle, and electric vehicle owners. Their consumption and policy advantages in Europe and the US indicate significant sales potential in the future. McKinsey's modeling scenario predicts that if automakers produce EREVs with an electric driving range of 150 miles (about 241 kilometers), their powertrain costs could be $6,000 (approximately RMB 43,558) lower than those of pure electric products. With declining battery costs, EREV production costs are expected to fall between similar-sized pure electric vehicles and fuel vehicles.

Among American consumers surveyed by McKinsey, 48% expressed confusion about existing powertrain types. Therefore, automakers must intensify promotion and advocacy for EREVs, helping consumers clearly understand their benefits and distinguishing them from electric vehicles and hybrid vehicles.

Typesetting by Zheng Li

Source: McKinsey

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