What is China’s roadmap for phasing out ICE vehicles?

China’s ICE vehicle phase-out roadmap is a multi-layered regulatory and market-driven transition designed to replace internal combustion engine (ICE) cars with New Energy Vehicles (NEVs) — battery electric, plug-in hybrid, and fuel-cell vehicles. The central target: achieve 50% NEV penetration of new car sales by 2035, with a complete end to ICE sales in several provinces before 2035. As of 2024, NEVs already account for 9 million units sold annually — roughly 35% of total new car sales — putting China on a trajectory that will reshape global supply chains. For any business dependent on ICE components, understanding this roadmap is not optional; it is a survival requirement.

1. National Targets and Policies Driving the Phase-Out

Q1: What is the official national target for phasing out ICE vehicles in China?

Short answer: There is no single nationwide ban on ICE sales yet, but the government’s New Energy Vehicle Industry Development Plan (2021–2035) sets NEV sales penetration targets of 20% by 2025, 40% by 2030, and over 50% by 2035.

What to know: The plan, jointly released by the State Council and MIIT in 2020, acts as a de facto phase-out timeline. It pressures automakers to shift production mix because the penalty for falling short of NEV credit obligations (under the dual-credit policy) is severe — companies must buy credits at market rates that reached ¥3,000–¥5,000 per credit in 2024. In addition, China’s carbon neutrality pledge for 2060 implies a full ICE phase-out for new vehicles no later than 2045–2050.

Bottom line: The national roadmap is a phased market-share mandate rather than a hard ban, but the accelerating targets leave no doubt: ICE-only production is a stranded asset by 2035.

Q2: What is the dual-credit policy and how does it phase out ICE production?

Short answer: The dual-credit policy (双积分制度, shuāng jīfēn zhìdù) imposes two mandatory credit scores per automaker — Corporate Average Fuel Consumption (CAFC) and NEV credits — and penalizes deficits.

What to know: Since 2019, automakers must earn a minimum NEV credit percentage (18% in 2024, rising to 20% in 2025) of their total production. If they produce too many ICE vehicles without offsetting NEV credits, they face fines of up to ¥50 million or forced production cuts. In 2023, nearly 40% of automakers failed to meet the target, triggering a credit trading market that now exceeds ¥2 billion annually. Foreign JVs like SAIC-VW and GAC-Toyota have been among the largest credit buyers.

Bottom line: The dual-credit policy is the most effective regulatory lever shrinking ICE output — when your ICE line loses money on credits, you reallocate capacity to EVs.

Q3: When does China plan to ban sales of pure ICE vehicles nationwide?

Short answer: No nationwide ban has been announced, but several leading policy institutes recommend a complete phase-out of ICE sales by 2040, with interim provincial bans starting as early as 2025.

What to know: The China Automotive Technology and Research Center (CATARC) proposed in early 2024 that a national ICE sales ban should be legislated by 2030, to take full effect by 2040. Meanwhile, the central government has empowered provinces to set their own schedules. The most ambitious — Hainan — will be the first test case.

Bottom line: A national ban is likely before 2040–2045, but foreign businesses must watch provincial regulations as local governments move faster than Beijing.

Q4: How does the New Energy Vehicle Industry Development Plan (2021–2035) affect foreign automakers?

Short answer: The plan dismantles foreign ownership caps (since 2022) and sets explicit NEV production quotas that apply to all manufacturers, including foreign joint ventures.

What to know: Under the plan, each joint venture (JV) must ensure at least 50% of its new models launched after 2025 are NEVs. For existing JVs like BMW-Brilliance or Daimler-BAIC, this means converting their model line-up within three years. The plan also prioritises battery supply chain localization, requiring foreign automakers to source at least 80% of battery materials from Chinese partners by 2028. In 2024, foreign automakers still produce over 12 million ICE units annually in China — the majority of which are at risk of becoming non-compliant.

Bottom line: The plan is not a suggestion; it is a compliance framework that will force JVs to either electrify quickly or lose their production quotas.

Q5: What is the role of fuel-cell vehicles in China’s ICE phase-out strategy?

Short answer: Fuel-cell electric vehicles (FCEVs) are a minor but growing part of the NEV mix, especially for commercial trucks and buses, with a target of 1 million FCEVs on the road by 2035.

What to know: China’s NEV definition includes BEVs, PHEVs, and FCEVs. The government has designated five city clusters (Beijing-Tianjin-Hebei, Shanghai, Guangdong, Henan, Hebei) for FCEV demonstration, with ¥20 billion in subsidies allocated through 2025. However, FCEVs represent less than 0.1% of total NEV sales in 2024 (about 8,000 units). The phase-out roadmap emphasises BEVs for passenger cars, but FCEVs may extend the life of certain ICE supply chains for fuel cell stacks.

Bottom line: Do not bet your supply chain on fuel cells for passenger cars — the roadmap is overwhelmingly BEV-led.

2. Provincial and Regional Timelines

Q6: Which province is first to ban ICE vehicles entirely?

Short answer: Hainan Province (海南省, Hǎinán Shěng) will become China’s first ICE-free region with a complete ban on the sale of fossil fuel vehicles starting 1 January 2030.

What to know: Hainan’s ban, announced in 2019 and codified in law in 2023, covers all light-duty ICE vehicles. The province already leads the nation with 45% NEV penetration among new car sales in early 2024, and its charging infrastructure density is 3 times the national average. Hainan’s success is being closely watched by other regions — Shanghai, Shenzhen, and Beijing have all signalled interest in similar bans before 2035. If Hainan achieves a full ICE phase-out, it will eliminate roughly 1.2 million ICE vehicles on the island.

Bottom line: Hainan is the proof-of-concept; foreign component suppliers should monitor its results as a template for national policy.

Q7: What are the timelines for other major provinces and cities?

Short answer: Beijing aims for 80% NEV sales by 2027 and a complete sales ban by 2035; Shanghai targets 70% NEV share by 2026 and a full ban by 2035; Guangdong province is drafting a 2038 deadline.

What to know: These targets are not yet legally binding, but they guide local subsidies, licensing, and road access policies. In Shanghai, ICE vehicles already pay ¥1,000 per year in extra registration fees, while NEVs enjoy free plates worth ¥90,000. Shenzhen has electrified 100% of its public bus fleet (18,000 buses) since 2017. A patchwork of local incentives and disincentives is accelerating the phase-out regionally, even without a national ban.

Bottom line: Your business in China must map its production and sales to provincial timelines — what is legal in Chengdu may be penalised in Shanghai.

Q8: How do provincial ICE phase-outs affect foreign automakers differently than domestic ones?

Short answer: Foreign automakers with legacy ICE factories concentrated in Tier 1 cities face compulsory conversion earlier, while domestic makers are already pivoting to NEV-only factories.

What to know: For example, Volkswagen’s JVs in Shanghai and FAW-Volkswagen in Changchun (Jilin) must adapt to those provinces’ aggressive timelines. In contrast, BYD — already 100% NEV — faces no conversion pressure. A 2024 report by McKinsey noted that foreign automakers’ ICE plant utilisation rates have fallen from 80% in 2018 to below 55% in 2024, partly due to provincial bans on ICE taxis and ride-hailing in cities like Shenzhen (since 2021).

Bottom line: Provincial timelines create geographic risk concentration — foreign companies with single-ICE plants in early-ban provinces will have less time to amortise investments.

Q9: Are there incentives for early adopters of the phase-out at the provincial level?

Short answer: Yes — provinces offer production subsidies (up to ¥50,000 per NEV), land discounts, and preferential electricity rates for converting ICE lines to NEV assembly.

What to know: In Anhui, Volkswagen’s new EV-only plant received ¥200 million in land subsidies and a 20% discount on industrial electricity for five years. In Hubei, the provincial government reimburses 15% of capital investment for supplier retooling. These incentives are tied to NEV production volume commitments — and they are often exclusive to foreign firms that localise key battery or power electronics manufacturing. Over 40 billion yuan in provincial-level EV incentives were disbursed between 2020 and 2024.

Bottom line: Early movers can capture hundreds of millions in subsidies, but the clock is ticking — most incentive programs expire by 2027–2028.

Q10: What happens to ICE aftermarket and repair businesses under regional bans?

Short answer: Regional bans only affect new vehicle sales, but continued ICE usage is heavily penalised through driving restrictions, congestion zones, and escalating registration costs.

What to know: In Beijing, ICE vehicles are banned from downtown for one day per week, and from certain low-emission zones on weekends. The result: 60% of Beijing households now own an NEV as their primary car. Independent repair shops specialising in ICE drivetrains saw revenues drop 30% year-on-year in 2023. However, the phase-out creates a parallel opportunity: retraining for EV diagnostics and battery refurbishment, which is already a ¥12 billion market growing at 45% annually.

Bottom line: ICE service businesses will have to pivot to EV maintenance within five years or exit the market.

3. Implications for Foreign Automakers and Suppliers

Q11: How does China’s ICE phase-out affect joint venture production quotas?

Short answer: JV production quotas are now directly tied to NEV compliance — if a JV cannot meet its NEV credit target, its overall production license may be capped or reduced.

What to know: Since 2022, MIIT has the power to reduce the annual production ceiling for a JV that fails dual-credit targets. In 2023, two smaller JVs had their quotas cut by 15%. The net effect: foreign partners are being forced to invest in NEV-only production lines within their JVs or risk losing half their ICE capacity by 2028. For example, SAIC-Volkswagen launched an ID.4 factory in 2022, converting an old ICE production line at a cost of ¥2.5 billion. Without that conversion, they would have faced a 10% reduction in total output.

Bottom line: JV quotas are reallocated in favour of NEV capacity — foreign partners that delay conversion will lose volume share to domestic rivals.

Q12: What is the timeline for foreign suppliers of ICE components (pistons, fuel injectors, exhaust systems)?

Short answer: Peak demand for these components will occur around 2027, after which volumes will decline by roughly 15–20% per year through 2035.

What to know: According to AlixPartners, China’s share of global ICE component demand will drop from 38% in 2023 to 15% by 2035. Companies like Bosch and Continental have already announced retooling of 20% of their Chinese factories for EV components (e-motors, inverters, battery management). Suppliers that do not diversify by 2027 will face stranded assets worth ¥400 billion collectively. The good news: the transition is manageable if you start now — lead times for retooling a factory are 18–24 months.

Bottom line: ICE component suppliers have a 2- to 3-year window to pivot to EV-specific parts or lose their Chinese customer base.

Q13: How do trade and tariff policies intersect with the ICE phase-out roadmap?

Short answer: China is using tariff reductions (e.g., on imported NEV parts) and non-tariff barriers (like the new NEV carbon footprint requirements) to accelerate the phase-out and protect local supply chains.

What to know: In 2024, China slashed import duties on battery-grade lithium (from 8% to 2%) and on power semiconductors used in EVs (from 5% to zero). At the same time, imported ICE vehicles face a 25% tariff plus a 10% luxury tax, effectively pricing them out of the market. The Ministry of Commerce has also proposed a local content requirement for NEV battery packs — requiring 70% domestic value-add by 2027 — which pressures foreign suppliers to build factories in China. Over 350 foreign auto parts companies have already established manufacturing bases in China to service the EV supply chain.

Bottom line: The tariff structure explicitly penalises ICE imports and rewards localised EV production; foreign businesses should reassess their import/export strategy accordingly.

Q14: Are there any loopholes or delays in the ICE phase-out for foreign automakers?

Short answer: Plug-in hybrid electric vehicles (PHEVs) are still classified as NEVs, providing a temporary bridge for automakers with strong ICE heritage, but regulators are tightening definitions.

What to know: In 2024, PHEVs accounted for 33% of NEV sales, up from 26% in 2023, driven by foreign brands like BMW and Mercedes. However, the government has signalled that after 2027, only BEVs and FCEVs will qualify for full NEV credits, and PHEVs will face a 50% reduction in credit weighting. Additionally, some provinces (e.g., Beijing) already exclude PHEVs from NEV licence plate schemes. Testing lab requirements for PHEV range verification are also becoming stricter, making it harder to inflate electric-only range.

Bottom line: PHEVs buy you perhaps three more years of ICE-based production, but the door is closing — full electrification of model lines is inevitable.

Q15: What is the risk for foreign businesses that continue to invest in ICE production in China beyond 2025?

Short answer: The risk is capital stranding: ICE-only factories will become unviable by 2030, with resale values dropping to near zero by 2032.

What to know: A 2024 report by Carbon Tracker estimated that ¥150 billion of foreign automaker ICE assets in China are at high risk of being stranded by 2030. Already, Ford, GM, and Stellantis have announced write-downs totalling ¥8 billion on Chinese ICE operations. Meanwhile, investor sentiment is turning — global ESG funds are divesting from companies with significant China ICE exposure. In 2023, foreign automakers with over 50% ICE-heavy China sales saw their stock prices underperform the sector by 12%.

Bottom line: Continued investment in ICE production in China is not just risky — it is a liability for your parent company’s valuation and compliance with global net-zero commitments.

Where to Go From Here

Based on what you just read:

• Ready to act? Read [guide: ICE-TO-EV-CONVERSION-CHINA]
• Still comparing? See [comparison: PROVINCIAL-ICE-BAN-TIMELINES]
• Need numbers? Try [tool: DUAL-CREDIT-COMPLIANCE-CALC]

— China Gateway 360 —
Remote China market entry support, built around execution.