Plug-in hybrid electric vehicles (PHEVs) are critical to the EU's decarbonization strategy, yet their real-world climate benefits remain uncertain. This study presents a large-scale analysis of real-world PHEV performance using on-board monitoring data from 457,303 vehicles (2021-2023). The results reveal a profound discrepancy between official test values and actual use. The mean real-world CO₂ emissions were 138 g/km, compared to a test-cycle average of 46 g/km, resulting in a regulatory gap of approximately 300%—significantly higher than for other vehicle types. Performance varied substantially across manufacturers, with gaps ranging over 200 percentage points. Contrary to expectations, larger battery capacity was correlated with a wider performance gap. Real-world electric driving averaged only 45.5% of distance, far below regulatory assumptions. This gap has grown wider each year, indicating test-cycle optimization is outpacing real-world efficiency gains. Policy analysis shows that closing this gap could achieve major CO₂ savings, underscoring the urgent need for regulatory reform, including real-world emissions monitoring and updated test procedures, to ensure PHEVs deliver their promised environmental impact.