China's auto market in 2025 has served up an unexpected plot twist: a resurgence of internal combustion engine (ICE) vehicles.
As brands like BYD and Li Auto continue to carve out market share, global and domestic players including Volkswagen, Geely, and Toyota are doubling down on smart upgrades for their ICE models. The industry buzzword now is "equal intelligence for oil and electric."
Data points to a "phased and structural" recovery for ICE vehicles in 2025. According to the China Association of Automobile Manufacturers (CAAM), domestic wholesale volumes of traditional ICE passenger cars reached 8.141 million units in the first nine months, reversing a downtrend to post 1.7% growth. September alone saw 1 million units shipped — a 6.4% year-on-year jump and the fourth consecutive month of positive growth.
On the product front, roughly 29 classic models saw average monthly sales climb back above the 10,000-unit mark in the third quarter of 2025 — nine more than the number of pure electric models in the "10,000-unit club." By adding driver-assistance and smart cockpit systems, these models pushed smart-tech penetration in the 100,000 to 200,000 yuan price bracket to new heights, cracking the stereotype that gas-powered cars are inherently low-tech.
This rush toward intelligent transformation has revived market interest in ICE vehicles once written off, but it has also sparked a core industry debate: Can this smart-tech push translate into market dominance by 2026? Is this "comeback" a lasting trend reversal, or merely a cyclical rebound in the lull between technological iterations?
Image source: Shetu website
Breaking the Deadlock: The Confidence Behind the ICE Comeback
"The intelligence gap between ICE and new energy vehicles used to be the decisive factor for consumers. Our goal now is to equip ICE vehicles with 'smart brains' on par with their electric counterparts," Wang Xiaodong, director of an automaker's R&D center, told Gasgoo.
In 2025, "equal intelligence for oil and electric" moved from concept to collective action, providing the core confidence for ICE vehicles to stage a comeback. This transformation rests on two pillars: the practical exploration by automakers and cross-sector empowerment from the supply chain.
Among domestic brands, Geely's strategy is representative. Leveraging its "Galaxy OS" smart ecosystem, Geely has comprehensively upgraded core ICE models like the Boyue and Xingyue. The 2025 Xingyue L now features the Qualcomm Snapdragon 8155 chip and a dual 12.3-inch screen setup—specs previously reserved for plug-in hybrids—along with a voice wake-up response time of roughly 0.3 seconds and support for full-vehicle FOTA upgrades.
Furthermore, Geely is deepening its partnership with Huawei, planning to integrate the HarmonySpace 5.0 system into the high-end Lynk & Co 900 to enable multi-device connectivity and scenario-based services. While specific sales figures and buyer demographics for this model have yet to be released, "smart features" are clearly a primary purchase driver.
Joint ventures, meanwhile, are opting for "local partnerships" to quickly close the gap.
At the 2025 Guangzhou Auto Show, Volkswagen unveiled its "equal intelligence" strategy, announcing that core ICE models like the Lavida Pro and Passat Pro will be the first to feature the IQ.Pilot driver-assistance system. Developed by its Chinese team, the system is optimized for local road conditions—handling city cut-ins, lane changes via stalk control, and obstacle avoidance in complex scenarios—and includes smart parking. The system is slated to roll out to additional ICE models starting in 2026.
The three German luxury giants—BMW, Mercedes-Benz, and Audi—are collectively betting on Chinese autonomous driving firms. BMW has signed a strategic partnership with Momenta to conduct simultaneous road tests in Beijing, Shanghai, Shenyang, and Nanjing, jointly developing a "full-scenario navigation driver-assistance" system tailored for China.
Mercedes-Benz and Audi have similarly partnered with Chinese tech firms like Momenta and Huawei to bring advanced driver-assistance systems to their next-generation models. As auto industry analyst Li Juan (a pseudonym) noted, foreign brands are shifting from localized manufacturing to localized R&D and ecosystems to accelerate their catch-up in ICE intelligence. "This is the only way forward," she said.
It is also worth noting that cross-sector empowerment from the supply chain offers a "shortcut" for this intelligent transformation.
Tech giants like Huawei, Momenta, and Horizon Robotics have become key partners for ICE automakers, leveraging their expertise in smart cockpits, driving algorithms, and chips. For instance, the Dongfeng Nissan Teana HarmonyOS Edition comes standard with Huawei's HarmonyOS 5 cockpit and HUAWEI SOUND. Meanwhile, Momenta's "flywheel" large model allows automakers to rapidly deploy mature driving solutions. This "automaker-led, tech-enabled" model has significantly shortened the upgrade cycle for ICE vehicles and lowered the technical barrier to entry.
Rapidly evolving consumer demand is the biggest driver of this shift. New energy vehicles have already normalized features like smart cockpits, human-machine interaction, and advanced driver assistance, turning these from "nice-to-haves" into "must-haves." "Driven by both consumer demand and regulation, ICE vehicles are being forced to move beyond simple price wars and compete on differentiation through intelligence," Li Juan emphasized.
Image source: Shetu website
Thorny Path: Obstacles to the ICE Comeback
While the intelligent transformation offers hope, inherent technical constraints and the first-mover advantage of new energy players mean this comeback attempt is fraught with difficulties.
"Upgrading ICE intelligence is essentially patching a traditional architecture, whereas new energy vehicles are reconstructing their smart DNA from the ground up. The gap cannot be bridged simply by stacking features," Zhang Ming (a pseudonym), head of R&D at a new energy automaker, told Gasgoo.
The traditional distributed electrical/electronic (E/E) architecture remains the primary bottleneck. These vehicles often contain dozens to hundreds of ECUs, with wiring harnesses frequently exceeding 2 kilometers—sometimes reaching 3 to 5 kilometers on certain platforms—driving up weight, cost, and assembly complexity. More critically, the dispersed computing power and high latency in cross-domain communication make it difficult to achieve the millisecond-level data fusion and coordinated control seen in domain-centralized architectures.
Zhang Ming offered an example: to adjust speed in real-time based on curve data from the cockpit navigation during advanced driving, a traditional architecture requires multi-hop bus forwarding. This can introduce latency of tens of milliseconds, and the heterogeneous software interfaces of different ECUs make development and validation far more difficult than with centralized systems.
The limitations of the 12-volt power system further constrain the upgrade potential of ICE vehicles. While mainstream ICE models still rely on 12-volt architecture, features like multi-screen smart cockpits, LiDAR, and advanced driving controllers demand significantly more power. The 12-volt system struggles to support the simultaneous operation of multiple devices, often leading to voltage instability and increased thermal stress.
Although some automakers are adopting 48-volt mild-hybrid systems to assist, this only alleviates pressure rather than solving the fundamental bottleneck. In contrast, the high-voltage electrical architecture of new energy vehicles provides stable power for high-computing devices and multiple smart components, creating a natural technological advantage.
Functional integration and thermal management present further technical hurdles. As smart components proliferate, the limited space in an ICE vehicle creates a packaging nightmare. The installation positions and angles for sensors like LiDAR, cameras, and millimeter-wave radars must be redesigned, all while balancing aerodynamic efficiency and crash safety standards.
More critically, running multiple smart devices generates significant heat. Since an ICE vehicle's cooling system is designed primarily for the engine, the added thermal load can cause local overheating, compromising the stability and lifespan of electronic components. Zhang Ming revealed, "During testing of our smart-driving ICE model, the LiDAR frequently threw errors in high temperatures. Optimizing the cooling system alone took nearly six months."
Undeniably, the first-mover advantage and technical moats of new energy automakers have squeezed the room for an ICE comeback. Leaders like BYD and Tesla have achieved full-stack in-house development from architecture to software. BYD's "God's Eye" driving system has been installed in over 2.3 million vehicles, creating a scale effect for data iteration, while Tesla's central computing architecture enables remote FSD upgrades, boosting user stickiness. These advantages have left ICE vehicles in a perpetual catch-up mode; even if they achieve "smart parity," surpassing new energy rivals in iteration speed and data accumulation remains a steep climb.
Image source: Shetu website
Reshaping the Landscape: A New Era of Coexistence in 2026
Looking back from the vantage point of 2026, the intelligent transformation of ICE vehicles may not have delivered a full turnaround, but it has shifted the industry from a binary conflict between oil and electricity to a divide defined by intelligence, fostering a new ecosystem of complementary coexistence.
In hindsight, this so-called "comeback" proved to be a cyclical rebound in the interval of technological iteration, not a trend reversal.
By 2026, market competition will have completely abandoned the singular logic where energy type determines the winner, shifting instead to a stratified contest centered on intelligence levels.
Data shows that the ICE market in 2025 was characterized by "polarization":
The entry-level segment below 100,000 yuan remains dominated by ICE vehicles, with models like the Nissan Sylphy and Geely Emgrand holding ground through basic smart features and pricing advantages. In the premium market above 300,000 yuan, brands like BMW and Mercedes-Benz have retained core users by combining "luxury craftsmanship with smart upgrades," avoiding significant share erosion.
However, in the mainstream 100,000 to 200,000 yuan market, ICE vehicles face continued pressure from new energy models. The "price parity" strategy for plug-in hybrids has pushed the penetration rate of new energy vehicles in this band to nearly 60%, further squeezing the space for ICE models.
"ICE vehicles are unlikely to return to their peak, but they can optimize their existing base through intelligence," Li Juan predicted from an industry perspective. While ICE market share remained above 50% in the first half of 2025, concentration among the top five brands was just 45.5%. Intense competition among leaders like Volkswagen, Toyota, and Geely has accelerated the exit of smaller players.
In 2026, intelligence will become the key metric in the ICE market survival game. Companies with strong brand power and upgrade capabilities will retain share, while laggards will be gradually phased out. ICE market share is projected to fall to around 45% in 2026, yet the proportion of intelligent ICE vehicles is expected to rise above 60%, creating a landscape of "shrinking volume, optimizing structure."
From an ecological perspective, the market is shifting from opposition to complementarity, fostering diverse competition. New energy models will dominate urban commuting and smart mobility scenarios, while ICE vehicles hold the fort in entry-level, premium luxury, and specialized segments. They will learn from each other technically while competing in different market niches. The smart upgrade of ICE vehicles will elevate the industry's overall intelligence, pressuring new energy automakers to iterate faster, while architectural innovations from new energy players provide a reference for the gradual transformation of ICE vehicles.
For ICE automakers, the core challenge in 2026 is not how to stage a comeback, but how to maintain competitiveness in a shrinking market. They must continue to deepen the "equal intelligence" strategy, optimizing smart features for specific segments rather than blindly stacking technology. Simultaneously, they need to prepare for low-carbon regulations by advancing hybrid technologies and low-carbon fuels.
"The golden age of ICE vehicles is over, but through intelligence and differentiation, they can still secure a place in the industry. The future automotive market won't be a solo act for new energy; it will be a symbiotic stage for diverse technologies and scenarios," Zhang Ming concluded.
Gasgoo Summary
From a long-term industry perspective, the wave of technological iteration is irreversible. The intelligent transformation of ICE vehicles is merely a buffer delaying the decline, not a cure-all that reverses the trend.
In the 2026 auto market, the ICE comeback can hardly be called a victory, but it will drive a shift in industry focus from the energy revolution to the intelligence revolution, injecting new momentum into high-quality development. The true significance of this transformation lies not in saving the ICE vehicle from its fate, but in ensuring that every technological pathway finds its place within the wave of intelligence—ultimately creating a diverse ecosystem that benefits both consumers and the industry.
