Why Hybrids Are Beating EVs In The U.S.

When it arrived in the United States at the turn of the millennium, the hybrid automobile was seen as a revolutionary step toward a less polluted future. It wasn't exactly exotic or luxurious, but Hollywood celebrities loved its green image, while cash-strapped everyday consumers loved its exceptional fuel economy. At a time when gasoline prices were on their way to reaching all-time highs. But since then, electric vehicles have stolen the show from all electrics with electrics. Vehicles, the. Tesla model Y becoming the best-selling vehicle in California. While electric vehicles stole the show, the company, once praised for bringing

hybrids

to the mainstream, received extensive criticism from environmental groups for its slow adoption of electric vehicles and for lobbying against stricter climate legislation.

But electric vehicle sales have slowed in the US, going from selling in just 25 days in early 2023 to 72 days just over a year later. Meanwhile,

hybrids

are flying much faster than even simple internal combustion cars and winning awards. Hybrid sales grew five times faster than electric vehicle sales in February 2024. Automakers are finally reading the room. They are realizing that they still have to sell cars now, not in the future. And that's what people want to buy. Automakers, including some that had made bold commitments to go all-electric, are now pulling back on EV manufacturing in favor of them.

But hybrids are not as effective as electric vehicles at reducing greenhouse gases. Proponents say they are a solid, short-term solution. Automakers, including some that had made bold commitments to go all-electric, are now phasing out electric vehicle manufacturing in favor of hybrids. Electric vehicle sales in the United States had an exceptional year. In 2023, a record number of 1.2 million units were sold. Its market share is growing, and yet the often-reported slowdown is real. The data shows that sales growth is stabilizing. One of the reasons traditional automakers are seeing a slowdown in EV sales has been Tesla's aggressive price cuts throughout 2023, but traditional automakers still sell plenty of hybrids, especially standard ones without plug.

You get a hybrid of the truck at a dealership. Many times that vehicle already has a customer, so it's not even a question of whether it really needs to be sold. Comparing data from January 2023 and February 2024 shows that hybrids continue to sell much better than internal combustion vehicles and electric vehicles. Look no further than the company that brought the hybrid to the mainstream more than two decades ago. Toyota Pro EV and environmental groups say the world's largest automaker has been pushing to slow the electric vehicle revolution it missed, even though it has experimented with battery electric vehicles before.

The company has long argued that the bridge to full electrification will be long and that most consumers are not ready for all-electric vehicles. That said, in 2021 it revealed plans to launch 30 electric vehicle models by 2030, with an annual sales target of 3.5 million. In January 2023, Toyota faced its first shareholder proposal in two decades. Investors insisted the company do more to combat climate change and questioned the re-election of Chairman and CEO Akio Toyoda. The proposal was rejected and Toyota kept his seat on the board of directors, but resigned as CEO in early 2024. Toyota has only two electric vehicles and neither are sold in large volumes, but in 2023, sales of its hybrids and plug-ins will increase. increased almost 28% compared to the previous year.

They represent around 30% of the Japanese giant's portfolio. Nothing has really changed within Toyota's product planning framework, and explain why we've continued to say this very, very succinctly. A year ago they made fun of us for it. Today they congratulated us for it. We don't get carried away by either of them. Toyota's American rival and sometimes Ford partner has been selling electric vehicles for longer and in larger volumes. Sales of its acclaimed Mustang Mach E and F-150 Lightning increased nearly 18% in 2023 compared to the previous year. Hybrids still surpassed that jump by more than a quarter. Ford CEO Jim Farley said the automaker would postpone about $12 billion in planned investments in electric vehicles and pull production of the F-150 electric pickup truck in favor of a hybrid version.

The success is part of the reason why everyone else maybe wants to get back in the game, because they see these brands having success with these vehicles that are so in demand. And not only do they sell quickly, but in many cases they sell at the suggested retail price. While Toyota may have pioneered the conventional hybrid, General Motors brought the plug-in hybrid to the United States in the form of the now-discontinued Chevrolet Volt. From an EV perspective, we also see this as our year to really execute and see growth there. So it's a great performance in 23.

I'm very proud of the team. But in early 2024, the company said it will reintroduce plug-in hybrids to its North American lineup. If you look at their core buyer base, the infrastructure for many of these people is not built in the places where they live. If you have people returning to dealerships with their old General Motors brand vehicles, it will be much easier to sell them hybrid vehicles than electric vehicles. Automakers are under great pressure to meet increasingly strict federal fuel economy standards. A single company's fleet must reach an average goal of 58 miles per gallon by 2032. That's 18% higher than the current rule of 49 miles by 2026.

The EPA also issued standards in March 2024 that require 35 and 56% of cars will be full electric vehicles by 2032, with costs rising across the board for American households and gas prices at three and a half dollars per gallon on average. Hybrid vehicles offer a sweet spot for many. Ice. The vehicles are losing market share, but EV sales are stagnating. The market is running out of early adopters and many say these vehicles are not ready for the mainstream. Basically, in the last ten years we have gone from 0% of the industry to 8%. So we are in a period of approximately ten years.

Government regulations say, okay, we've gone from 0 to 8% in ten years, but now, in the next eight years, we're going to grow 60%, not 60%. Let's take that number from 8% to 67%. People say, wait, I don't know who's going to buy them right now. As we move toward the mass market, it's much harder to sell to those people. They are much more price and product conscious. They have many more questions in general. Um, and I think that's really going to impact the EV adoption rate for quite some time. And that was always going to be the case. On average, electric vehicles were the most expensive powertrain you could buy at the beginning of 2024.

Plug-in hybrids were almost as expensive. Standard hybrids were cheaper than everything, including Ice vehicles. I think right now in this country we are going through an affordability crisis in many industries. But I think the automobile sector is being important because if you look at how people have purchased vehicles in the past, it has been because of low interest rates. And now that is not the case. The average interest rate on a new vehicle loan is over 7%. It is more than 11%. So when we look at what we can afford, it's probably less than what we could afford in the past.

It's hard to swallow to say that I can buy an Ice vehicle. Or even a hybrid vehicle at, say, 700 dollars a month and a Bev at 9 or 1000. That's a significant increase. Electric vehicles have strong selling points. They are simpler and cheaper to maintain, and the cost of charging is much less than refueling in parts of the country where gas prices are higher. But there are persistent obstacles, still relatively long charging times and a lack of public charging infrastructure. But a lot of people say I just don't want the hassle of owning an electric vehicle. As if my life was already complicated enough.

I don't need to learn a whole new system of doing things to just drive and go the places I want to go. It's easy to put on a sheet of paper. Hey, I used X amount of gasoline, I'm going to use X amount of electricity. Excellent. I will be ahead in 18 months in terms of cost, but the convenience factor is priceless. It's an idea that could take my family to four states on vacation once a year. I don't want to take three days to arrive. That convenience factor could completely drive that consumer out of the Bev market 100% and cannot be quantified. 83% of electric vehicle charging is done at home, but data from J.D.

Power show that 1 in 3 car buyers do not have a home charger or the ability to install one. The company conducts a combination of studies on electric vehicles, including a year-round public charging survey of 30,000 consumers in all 50 states and D.C.. The most common reason people decide not to buy an electric vehicle is lack of public charge. Electric vehicle owners say public charging issues are the least satisfying aspect of the ownership experience. Almost 20% of the time, drivers visit a public charger and are unable to charge. Most of the time, this is because chargers fail or malfunction, but the number of times a station is unavailable or the wait is too long has doubled from 10% to 20% of failures in just two years.

While electric vehicle adoption has experienced some hurdles, no one expects demand to drop or remain stable forever. Globally, electric vehicle production is expected to double from 13,000,000 in 20 24 to 30 5,000,000 in 2031, while hybrids are only expected to increase from 13 to 15 million in the US, Electric vehicles will experience staggering growth in the next decade. We remain very optimistic about electric vehicles and where the market is headed. We look at the investments that manufacturers have made in vehicle electrification. I think that says a lot in terms of where manufacturers think the market is going, an important distinction. Standard hybrids are really just more efficient gasoline cars, supplemented by a battery and electric motor that extends the vehicle's fuel economy.

This is what the original Prius was and what many hybrids are today. Plug-in hybrids have a charging port, battery, and at least one electric motor. Some of them, in theory, can run without gasoline. As in an electric vehicle, the engine acts as a range extender, in others the engine and the electric vehicle. Motor work. Together. With a plug-in hybrid or a hybrid, you know, you can largely avoid that public charging scenario. Are you eliminating what is the worst aspect of owning an electric vehicle? There has been a slight increase in the number of models available compared to standard hybrids since 2019.

However, they are the smallest car category in terms of market share and are not particularly cheap. On average, they cost almost as much as an electric vehicle. They also don't offer many of the benefits of a full electric vehicle. You still have to get oil changes and maintain the internal combustion powertrain, and you have to buy gas when driving on battery power alone. Plug-in hybrids have only a fraction of the range found in a full electric vehicle. In essence, what you are doing is combining two different product technologies into one. But it doesn't serve either category very well.

In other words, it might be the worst of both worlds, but it provides the convenience of being able to rely on electric power for daily driving, but having gasoline as a backup when needed. The EPA electric range on the plug-in Prius Prime is 44 miles. The average American drives about 37 miles. That's why you're seeing a lot of the competitors in the news. You're seeing everyone starting to discuss it, but they're not discussing it as a bridging strategy. you arehearing it said that this is perhaps the best valued strategy. I want to make sure we're clear. There is a lot of momentum being seen around plug-ins because of what has been learned about the rejection of electric vehicles.

Another problem with plug-in hybrids is that they can run exclusively on gasoline. A 2022 study by the International Council on Clean Transportation, a group that studies alternative propulsion systems, found that plug-in vehicles could drive in electric mode between 26% and 56% less than one might assume based on the vehicle's labeling. EPA, and real world fuel consumption can be 42%. % to 67% more. The study noted that at the time the sample size was small and more data was needed. Plug-in hybrids are great if you plug them in. As we said, not everyone plugs them in. Therefore, the theoretical efficiency is greater than the practical one.

J.D. power has found that plug-in hybrid owners charge their vehicles fairly consistently about five times a week on average, and use that electric range about 70% per day. Despite the concerns, some believe they may be the best option available to move the needle closer to electric vehicles. You have to convince the consumer that a plug doesn't disrupt their life, and the way to do that is to present it to them in a bite-size piece, not in an all-you-can-eat concept. UC Davis professor Gil Towle sees it somewhat differently. Plug-ins were originally conceived as a bridging technology, a temporary compromise that would become obsolete as electric vehicles improved.

While they can certainly serve that purpose, they are likely to last much longer, at least for the last 20 to 30% of the market that can't make the full leap to battery technology. California, which plans to ban the sale of internal combustion engines by 2035, still allows 20% of all new cars sold after that date to be plug-in hybrids. For a very short time, we all thought that a fully electric Bev battery electric vehicle would get us to 100% or full transition. I think we're learning to appreciate that it's going to be difficult. So as long as we think about 20% of sales, 30% of sales, we can go all-electric.

But when we need to get to 50, 60, 70, closer to 80, it's starting to get very difficult. And then plug-in hybrids start to make sense.