Automotive industry experts called on both major political parties to reinstate the tax concession on Tuesday, saying a failure to do so could increase transport pollution and limit consumers' access to the low-emission vehicles preferred by many.
The tax concession's removal comes after a bumper year for the vehicles in Australia in which sales more than tripled and rose to compete with electric cars.
It also comes after the release of several popular plug-in hybrid electric vehicles and has the potential to slow down their growth, National Automotive Leasing and Salary Packaging Association chief executive Rohan Martin said.
"The timing isn't ideal given that we've seen, particularly over the last 12 to 18 months, a greater hybridisation of the fleet," he told AAP.
"It's happening just as we're seeing the likes of the BYD Shark (ute), we're about to see the Ford Ranger (ute) and we'll see large SUVs in plug-in form, and we want to encourage their adoption."
The tax exemption, introduced in late 2022, removed fringe benefits tax from some electric, hydrogen and plug-in hybrid vehicles, cutting their price by thousands of dollars a year through novated leases.
The tax cut was passed into law with support from the Greens and independent senator David Pocock with a proviso that plug-in hybrid vehicles be removed from the exemption on April 1, 2025.
The change had boosted sales of the hybrid vehicles, Mr Martin said, particularly in outer suburban and regional areas where drivers remained concerned about vehicle range and preferred large SUVs and utes that were often available in diesel or hybrid models.
"If you take a look at some of these popular, larger SUVs, they're simply not available in (battery electric vehicle) form," he said.
"The plug-ins and the hybrids provide a good option for people who want to save during a cost-of-living crisis."
Sales of new plug-in hybrid electric vehicles rose by 222 per cent over the year to February, according to figures from the Federal Chamber of Automotive Industries, with motorists buying more than 6700 models in the first two months of the year alone.
Removing the tax incentive could slow down their growth, said Electric Vehicle Council policy head Aman Gaur, who urged both sides of politics to consider extending tax cuts.
"Plug-in electric vehicles have been very popular in recent years and we encourage the next parliament to help Australians get into (them) by reinstating the FBT exemption," Mr Gaur said.
The coalition has yet to confirm or deny reports that it will announce incentives for hybrid vehicles during the federal election campaign, or make changes to the New Vehicle Efficiency Standard that came into effect in January.
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