China to Raise Minimum Efficiency Requirements for Tax-Exempt New-Energy Vehicles

­China is raising the minimum range and efficiency for vehicles eligible for tax incentives. From 1 January 2026 onwards, all plug-in hybrid and pure-electric vehicles must meet stringent new requirements.

While “new energy vehicles” are still relatively niche in the U.S. – in 1Q 2025, new energy vehicles (including BEVs, PHEVs, and hybrids) accounted for 21.2% of new light-duty vehicle sales – in China it’s nearly half. In August 2025, electrified models accounted for a full 48.8% of all new car sales in China.

Some of that is for practical reasons – China leads the world in rare Earth mineral production and lithium-ion batteries – but it’s mostly because of astronomical government subsidies, tax breaks, and strong-arming for the EV sector over a significant period.

And it’s policies like that that allowed the China-based Build Your Dreams to become the largest EV company in the world, surpassing Tesla just this year.

Though ironically, the same nation that paces the globe in new energy vehicles also leads the world in a rather dubious honor – most pollution (much of it due to China’s reliance on coal and their gargantuan manufacturing sector, some of it related to batteries and EVs).

At the start of next year, all “new energy vehicles” must abide by the following prerequisites to maintain their tax exemption status:

For plug-in hybrids, the electric-only range will increase from 43km (26.7 miles) to at least 100km (62 miles), with fuel consumption set at less than 70% of standard limits for vehicles under 2,510kg (and 75% of standard limits for vehicles 2,510kg or above).

Meanwhile, the energy consumption for pure-electric vehicles will be 11% stricter than previous requirements, and vehicles greater than 3,500kg will follow the 3,500kg vehicle consumption standard.

“These adjustments align with rapid improvements in NEV range and extended-range technology, ensuring policies keep pace with technological progress,” said Cui Dongshu, Secretary General of the China Passenger Car Association, to Chinese media NBD. “By raising technical thresholds, the government is guiding companies to increase R&D investment, eliminate outdated products, and shift the industry from scale expansion to high-quality development.”