• China's EV companies are turning to hybrids, which are becoming increasingly popular with drivers.
• Tesla rivals such as Zeekr plan to launch their first hybrid models.
• Hybrids could help them avoid European tariffs on Chinese EVs.

China's Tesla rivals have a new trick up their sleeve: hybrids.

China is the world's largest electric vehicle market in terms of sales. But many of its battery-powered pioneers are now turning to hybrids and extended-range vehicles as they vie for a slice of a highly competitive market and expand overseas.

Xpeng, which rivals Tesla in EVs and humanoid robots, recently unveiled its Kunpeng Super Electric System, a new powertrain system that Xpeng says will allow future vehicles to travel 1,400 kilometers (870 miles) without stopping to charge or refuel. It's unclear when it will launch new models with this technology, though its first hybrid model could arrive early next year.

Rival Zeekr also plans to release its first hybrid, an SUV, in the second half of 2025.

There's a reason these companies are abandoning their all-electric strategy: hybrids and extended-range vehicles are becoming increasingly popular in China — and could make it easier for Chinese EV makers to dodge tariffs overseas.

Hybrids are having a moment

BYD, China's largest EV maker, has reported booming growth in recent months, largely due to its hybrid lineup.

Its hybrid sales jumped were almost 70% higher in November compared with the same month last year. BYD says its latest hybrids can go up to 1,250 miles without stopping for gas or charging.

Tu Le, managing director of consultancy Sino Auto Insights, told Business Insider that China was now "well past the first movers" when it comes to battery electric vehicles.

That has led EV companies to increasingly target customers with limited access to charging infrastructure who may be more skeptical of pure battery-powered vehicles. "There's a huge market for those people," Le said.

He added that diversifying into hybrids made financial sense for EV startups still searching for profits, as hybrids and extended-range vehicles are generally cheaper to produce than battery electric equivalents due to their smaller batteries.

Despite delivering record numbers of cars in recent months, Xpeng, Zeekr, and Nio continue to rack up heavy losses amid a bruising price war in China's cut-throat EV market.

Above all, Le said the likes of Xpeng and Zeekr did not want to miss out on the booming popularity of hybrids.

"They've seen the success BYD has had. BYD basically gives you a full menu — they have offerings at $10,000, $15,000, $30,000 on battery electric or hybrid. That's a compelling reason to buy a BYD," he said.

Overseas ambitions

There are other advantages to selling hybrids, especially for Chinese manufacturers with one eye on overseas expansion.

BYD, Xpeng, Nio, and Zeekr are all seeking to grow beyond the pressure cooker of China's brutally competitive EV market by selling new models and setting up factories in foreign markets.

This expansion push has increasingly encountered hurdles as Western nations have imposed trade protections to protect their auto industries from a wave of cheap Chinese EVs.

The European Union followed in the footsteps of the US by finalizing steep tariffs on imported Chinese electric vehicles in October, with some manufacturers facing a maximum tariff of 35.3% on top of an existing 10% levy.

The new EU tariffs, however, do not apply to hybrids, giving China's EV upstarts a crucial opening.

BYD is already looking to take advantage, with president Stella Li telling Autocar the company was planning to launch three hybrid models in Europe next year alongside three battery EVs.

Fellow EV maker Nio, meanwhile, is reportedly developing its first hybrid model exclusively for the overseas market.

Auto experts have said that European tariffs could ultimately boost imports of plug-in hybrids. S&P Global Mobility analyst Ian Fletcher recently wrote that Chinese automakers are likely to replace some pure EVs in Europe with more hybrids and petrol vehicles.

"I think BYD is going to go to town on the lack of a higher tariff on plug-in hybrids in Europe," said Le. "And the Europeans are going to eat up plug-in hybrids, full stop."

BYD, Zeekr, and Nio did not respond to requests for comment from Business Insider.

• China's Tesla rivals are booming, with BYD, Nio, and Zeekr all breaking sales records.
• Despite their success, many Chinese automakers continue to lose money.
• Nio reported a widening net loss in its latest earnings, as the CEO of Xpeng warns many EV firms face a fight to survive.

China's Tesla rivals might be booming, but they're still losing money.

Nio, Zeekr, Xiaomi, and Xpeng have all broken personal sales records in recent months. Xpeng delivered 24,000 vehicles last month, and Xiaomi sold over 100,000 of its SU7 EV this year alone.

However, the booming sales come as many Chinese EV makers continue to report heavy losses, as they grapple with a brutal price war and intense pressure to quickly launch new affordable models amid a crowded field of battery-electric vehicles.

EV startup Nio, known for its battery-swapping stations and run by CEO William Li, sometimes dubbed "the Elon Musk of China," reported widening losses in its Q3 earnings on Wednesday.

The company reported a net loss of 5.06 billion yuan ($700 million), up 11% from the third quarter of 2023.

Shares plunged nearly 7% in the hours after the announcement, despite Nio delivering 61,800 vehicles in the past three months, a new quarterly record for the company.

The company has been hit hard by the price war that has gripped the Chinese market for much of the past year. Nio said vehicle sales had fallen despite record deliveries due to lower average selling prices.

Nio's rivals reported a similar blend of booming deliveries and painfully high losses.

Zeekr delivered a record 55,000 vehicles in the third quarter, up over 50% from last year, while fellow EV startup Xpeng recorded record sales of its electric vehicles in October.

Both companies narrowed their net losses year-over-year, but they remained sizable at 1.81 billion yuan ($250 million) for Xpeng and 1.14 billion yuan ($157 million) for Zeekr, respectively.

Xpeng's shares fell amid concern that the company's upcoming affordable models may dilute selling prices and margins.

Smartphone maker Xiaomi, which has pivoted into EVs and received acclaim from Ford CEO Jim Farley, announced it was upping its sales target for its high-tech SU7 electric vehicle after selling over 100,000 this year.

Despite this, the tech giant continues to lose money on its EV venture.

A fight to survive

Xpeng CEO He Xiaopeng told Singaporean newspaper The Straits Times that the competitive pressure means most Chinese carmakers will not survive the next decade.

"From 300 start-ups, only 100 of them survived. Today, there are fewer than 50 companies that still exist, and only 40 of them are actually selling cars every year," he said.

"I personally think that there will only be seven major car companies that will exist in the coming 10 years," Xiaopeng added.

One company that is not having the same problems is Tesla's nemesis BYD.

The automaker posted bumper revenues in its Q3 earnings last month, outstripping Elon Musk's company in quarterly sales for the first time, and recorded a profit.

BYD's net profit rose 11.5% from the previous quarter to 11.6 billion yuan ($1.6 billion), and it also sold a record number of vehicles in the third quarter. It's its success comes as Tesla's sales in China slip, with the company's October deliveries down 5.3% from the same month last year.

Analysts previously told Business Insider that BYD was reaping the benefits of its strong hybrid lineup and that its manufacturing approach of making almost every component in-house enabled the company to keep costs low.

"BYD's high degree of vertical integration — making rather than buying many key strategic components — means it can control production of batteries and chips and can do so at very low cost," David Bailey, a professor of business economics at the University of Birmingham, told BI.