Plug-in hybrid car sales have surged but an expiring tax discount could soon end the party (2024)

An unexpected resurgence in the popularity for hybrid cars has prompted the motor industry to ask that tax benefits be kept for plug-in hybrids, saying they will remain "critical" to cutting carbon emissions over the next decade.

Plug-in hybrids are currently exempt from fringe benefits tax, which can save about $20,000 for new cars bought under a novated lease — but that benefit is due to end in April next year.

The federal government agreed to end tax breaks for plug-in hybrids as part of a deal with the Greens and independent senator David Poco*ck to pass its election promise to introduce an "electric car discount".

The Greens and Senator Poco*ck had argued exempting plug-in hybrids, which contain a battery charger and an internal combustion engine, would in effect be subsidising a fossil fuel.

Plug-in sales have doubled from last year

Plug-ins were always intended as a transition technology until fully electric vehicles matured and fell in price.

But their sales have defied expectations, and the share of all hybrids being sold has risen in recent months compared to other vehicles.

The upward trend has been notable. Plug-in hybrid sales for the first six months of this year were more than double what they were in the first half of 2023. They have also grown as a share of all electric vehicles sold.

Motor Trades Association boss Matt Hobbs said it was a sign plug-ins were still filling a need for Australians, both in what they could do and their price.

"Battery electric vehicles are great, but not for every vehicle type, and this is where plug-in hybrids for larger vehicles and utes will play such an important role in making sure we can get better and more fuel-efficient vehicles on the road," Mr Hobbs said.

Rohan Martin, chief executive of the National Automotive Leasing and Salary Packing Association, said since the "electric car discount" was passed in 2022, there had been a "significant" uptake in electric vehicles acquired on novated leases.

Mr Martin said about 40 to 45 per cent of all electric vehicles in Australia were acquired through a novated lease, "off a very low number" before the legislation passed.

But he said if government incentives were ended next year, it could harm demand.

"Without that incentive in place, we think there will be a significant drop in [plug-in hybrid] sales, plus those who have been considering moving to some electrified vehicle, we think it's likely to dis-incentivise them, particularly if they are wanting a larger type of vehicle," Mr Martin said.

Mr Martin said with some highly anticipated plug-ins due to enter the market next year, in particular a plug-in Ford Ranger and the BYD Shark, "the timing is unfortunate if this exemption is to end".

Industry says plug-ins critical to cutting emissions

Earlier this year the federal government established major climate laws for the car industry that will require car makers to sell cleaner or more fuel-efficient cars each year or else face heavy penalties if they exceed emission limits.

Mr Hobbs said in light of the ongoing cost of living crisis, unexpected sales trends and now an overarching climate policy for the industry, the government should revisit its decision to end tax benefits for plug-in hybrids.

"The government has set a challenge for the industry to decarbonise … Now they've got it, we need to give industry the tools and consumers to be incentivised," Mr Hobbs said.

"The evidence is that if you want to get more fuel-efficient vehicles in that larger size, that people like to drive in Australia, [buying] plug-in hybrids is something we've got to encourage."

Mr Hobbs said plug-in technology for bigger cars would remain critical for car makers to meet their new emissions obligations until batteries could do the job.

A spokesperson for Treasurer Jim Chalmers said the electric car discount was a "win" for motorists, businesses and climate action.

"More Australians will be able to get behind the wheel of an electric car thanks to these changes which will reduce up-front and ongoing costs," he said.