In 2027, the European Commission intends to change how emissions are calculated for plug-in hybrid electric vehicles (PHEVs). These changes to the ‘utility factors’ that are recorded for PHEVs sold in Europe will have dramatic consequences for the continent’s automotive industry. In this article, we’ll explore what the PHEV utility factor is and what pending changes mean for Europe’s mobility ecosystem.
A PHEV combines electric and combustion power. During its operational life, for a proportion of the distance the vehicle travels, it will run on electricity and at other times it will be powered by a combustion engine. The utility factor is the share of the distance that a PHEV runs on battery power – so a utility factor of 60% would mean that the vehicle runs on electric power for 60% of its range.
When calculating the average CO2 per kilometer associated with driving a PHEV, regulators must assume an average PHEV utility factor to account for the varying behaviors of all motorists. Since tailpipe CO₂ emissions are zero when the vehicle is operating on battery power, a higher utility factor serves to lower the rated CO₂ emissions of the vehicle.
For example, if a PHEV emits 100g of CO2 per kilometer while under engine power, then a utility factor of 60% results in an overall emissions average of 40g per kilometer. On the other hand, a utility factor of 30% results in an overall emissions average of 70g per kilometer. Since automakers and commercial fleets pay a penalty for every gram of CO2 above their fleet-wide average target in the EU, this means the PHEV utility factor directly determines the economic viability of PHEVs on the continent.
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Currently, the EU rates PHEVs that have a 70km electric range as having a utility factor of 54%. However, this has come under criticism for a couple of reasons.
The first criticism is over discrepancies between recorded and real-world utilization rates in older vehicle models. Critics claim that, in real world conditions, the combustion engine is in use more often than the EU’s utility factor would suggest. The other criticism is that many PHEV models still occasionally use engine power in electric mode. Critics have estimated that up to one-third of “all-electric” distance covered requires some additional power from the combustion engine.
As a result of both these concerns, the EU is now planning to bring the PHEV utility factor down from 54% to just 36%.
Regulators must assume an average PHEV utility factor to account for the varying behaviors of all motorists
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According to the EU Clean Vehicles Directive, for a PHEV to be considered a low emission vehicle it should produce less than 50g of CO2 per kilometer. This pending 20% cut to the PHEV utility factor means that, in practice, the types of PHEVs sold in Europe – typically with less than 100km of battery range – will no longer meet this emissions threshold.
This is because, in practice, it’s not possible for a PHEV to run an engine efficiently enough to meet the 50g per kilometer limit when it’s in use, meaning that automakers would need to boost their PHEV electric ranges to around 160km. To do this, automakers would need to significantly increase the amount of costly battery mass used in these vehicles – meaning higher costs for end-users, and a hike in their embedded emissions burden. And given the lack of a home-grown battery ecosystem in Europe, it also means increased dependence by European automakers on non-European battery producers.
In practice, this could suppress the market share of PHEVs in the EU, jeopardizing European production and undercutting incentives for the industry to invest in these technologies.
This would result in a decline in the EU’s share of the global automotive market. Given the expertise of non-European car manufacturers in producing PHEVs with much larger batteries, the decline of the smaller European PHEV category would be a prime opportunity to seize market share from the continent’s brands.
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The problem this policy attempts to tackle is a discrepancy between perceived battery use and actual battery use in PHEVs. The European Commission's solution is to change how it quantifies the utility factor, essentially placing the burden on European automakers to solve the issue. This dramatically reduces the value proposition of smaller, affordable PHEVs in the European market.
We think a better solution comes from innovation and infrastructure. Firstly, the PHEVs of even the 2025 model year have posted significant technological gains over the models of the 2023 model year. The state of the art for PHEV e-drives has advanced, and these systems are today more powerful and no longer require combustion support one-third of the time. In addition, the control systems that regulate the switch-over from pure-electric to combustion modes have improved radically, allowing PHEVs to operate more intelligently than previous model generations.
Secondly, in practice, charging infrastructure created a major bottleneck for PHEV utilization. For many drivers, a lack of charging points meant that they could not drive in all-electric mode in their day-to-day business. The reason for this is simple lack of supply relative to demand: between 2017 and 2023, the sale of electric cars increased eighteen-fold, while the number of public chargers in the EU increased just sixfold. The EU itself recognizes this shortfall and has committed to reaching 3.5 million charging points across Europe by 2030.
Rather than fix the utility factor to match circumstances that have since changed – and continue to rapidly develop – we believe it should reflect the actual reality faced by European PHEV drivers. Through the lens of rapid growth in charging infrastructure and the increasingly sophisticated PHEVs of the current model year, freezing the current 54% utility factor for 2027 is a reasonable fix.
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We believe in following the math. When it comes to minimizing lifecycle greenhouse gas emissions, PHEVs with sub-100km electric range should have a major role for the continent’s mobility ecosystem. They come with relatively low embedded emissions, along with the prospect for near-zero tailpipe emissions when used in all-electric mode for regular commuting and short trips.
By driving out this niche in favor of PHEVs with larger, costlier batteries, the EU risks significantly reducing the scope of the PHEV market and disadvantaging its own automotive industry in favor of imported vehicles from strong competitors outside Europe.
Ultimately, there’s not just one single road to bringing down global transport emissions. Small, efficient PHEVs are one among many roads– the EU should nurture them, not drive them out.
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