Despite the EV boom, insufficient ICE displacement in China keeps gasoline demand at plateau till early 2030s

EV sales are already transforming the Chinese passenger car fleet and denting the gasoline demand growth while the actual displacement is still modest. A persistently high share of gasoline cars and real-world fuel economy will keep the demand at a plateau till 2030s.

Elevated EV sales in China have pushed the share of gasoline-powered passenger car sales to below 50% in recent months. In September alone, battery-electric vehicles (BEV) made up 31% of total passenger car sales with plug-in hybrids (PHEV) adding another 20%. By year-end, gasoline passenger cars are projected to hold 54% of the new car market, reflecting an 8-basis-point decline from 2023. This trend highlights a swift shift towards cleaner mobility, driven by rising consumer adoption and aggressive subsidies.

China monthly passenger car sales by powertrain share (%)

Source: Kpler calculations based on CAAM data

Our projections show that China’s EV adoption (BEV+PHEV) will maintain strong momentum. EVs will reach 56% of total passenger car sales in 2030. Gasoline cars, in contrast, are expected to shrink to 41% of sales by 2030 and only 19% by 2040. We expect that almost all of gasoline cars sales will be dominated by hybrid electric vehicles (HEVs) by then. The enhanced fuel economy of HEVs will improve overall fleet efficiency while eroding gasoline demand.  

Notwithstanding robust EV sales, gasoline-powered passenger cars are estimated to make up 84% of the total passenger car fleet in 2024 (266 million), with EVs accounting for roughly 13%. According to Kpler calculations, the number of EVs in the Chinese passenger car fleet will reach around 33.1 million by the end of the year.

China annual passenger car sales by powertrain share (%)

Source: Kpler

China passenger car fleet evolution by powertrain (%)

Despite rapid EV adoption, over the longer term, gasoline cars will remain significant within China’s total vehicle fleet, making up around 70% by 2030 and will not drop below 50% until 2040. Plug-in hybrids (PHEVs) are projected to maintain a solid growth trajectory, accounting for 10% of the fleet by 2030. This evolving fleet composition will likely keep gasoline demand stable throughout the decade, with a more pronounced decline expected to begin in the mid-2030s. Until then, gasoline demand is likely to hover near current levels.

While a flatlining gasoline demand, or a still modest growth (under 100 kbd), in China seems acceptable in the face of a speedy technological change, that’s hardly good news for the markets by historical standards. In the 2005-2019 period, the Chinese gasoline demand grew by 8.3% on average every year, adding around 170 kbd annually.

From 2024 to 2030, however, the demand is forecast to decline by 0.15% on average, still at 4 Mbd and 2% lower than our current forecast. For 2024, our model shows a 3.7% increase in gasoline demand to 4.14 Mbd.  

Chinese gasoline demand historical (kbd)

Source: Kpler

China gasoline demand forecast (kbd)

Source: Kpler

The relative resilience of Chinese gasoline demand partly stems from discrepancies between laboratory fuel economy results and real-world consumption, with research revealing a gap of around 15%. This means that despite ever-improving fuel economy standards and efficiencies as promoted by automobile manufacturers and stipulated by regulations, real-world consumption of gasoline cars is higher than test results indicate. Moreover, real-world fuel consumption figures for passenger cars still fall short of meeting the targets stipulated in China’s Corporate Average Fuel Consumption (CAFC) policy.  

China’s Stage 4 fuel consumption (l/100km) rules for light vehicles will introduce stricter fuel economy standards as part of CAFC. Effective in January 2026, new regulations require manufacturers and importers to meet a standard of 3.3L/100 km fleet average fuel consumption limit by 2030. However, this may not affect the manufacture of gasoline cars that fall below this standard, as manufacturers and importers can generate NEV credits through EV production as an offset. This also implies that Chinese EV exports will remain robust.

Against this backdrop of EV manufacturing and sales dominance in the world, the inevitable question is the extent to which Chinese gasoline demand is being replaced.

Our findings are that gasoline demand displacement is less than expected, despite recent bullish media narratives. China’s EV fleet is forecast to displace 248 kbd of gasoline demand this year. This figure, however, is a hefty increase of 37% compared to 2023 despite an estimated displacement efficiency of only 1% in 2024. This modest displacement efficiency means that only 1% of the EVs added to the fleet are replacing gasoline cars. This is largely a result of a passenger car fleet that continues to grow, gasoline-powered vehicles included. While the fleet growth is expected to stop by mid-2030, a more effective displacement efficiency, whereby for every EV added to the fleet, one or more gasoline car is removed, is anticipated by early 2030s. Our calculations show that displacement efficiency is forecast to reach 117% by early next decade - when China’s total EV fleet will roughly displace 810 kbd of gasoline demand annually.

Gasoline displacement by BEVs in China (kbd)

Source: Kpler

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