Automakers turn to hybrids in the middle of the EV transition

DETROIT — As sales of all-electric vehicles grow more slowly than expected, major automakers are increasingly meeting their customers in the middle.

More and more companies are reconsidering the viability of hybrid cars and trucks to appease consumer demand and avoid costly penalties related to federal fuel economy and emissions standards.

The shifting strategies run counterintuitively to industrywide EV messaging of recent years. Many auto companies have begun to invest billions of dollars in all-electric vehicles, and the Biden administration has made a push to get more EVs on U.S. roadways as quickly as possible.

But hybrid vehicles — those with traditional internal combustion engines combined with EV battery technologies — could help the automotive industry lower fuel consumption and emissions in the short-term, while easing consumers into vehicle electrification.

Sales of traditional hybrid electric vehicles, or HEVs, such as the Toyota Prius, are outpacing those of all-electric vehicles in 2023, according to Edmunds. HEVs accounted for 8.3% of U.S. car sales, about 1.2 million vehicles sold, through November of this year. That share is up 2.8 percentage points compared with total sales last year.

EVs made up 6.9% of sales heading into December, or roughly 976,560 units, up 1.7 percentage points compared with total sales last year. Sales of plug-in hybrid electric vehicles, or PHEVs, accounted for only 1% of U.S. sales through November.

“There’s been so much talk over the past few years about the move toward electrification and sort of forgoing hybrids, but … hybrids are not dead,” said Jessica Caldwell, Edmunds executive director of insights. “There’s a lot of consumers out there that are interested in electrification, maybe not ready to go fully electric.”

Hybrids can also cost less and relieve many concerns typically associated with EVs such as range anxiety and lack of charging infrastructure. The average hybrid this year cost $42,381, according to Edmunds. That’s below the roughly $59,400 average for an EV; $60,700 for a PHEV; and $44,800 for a traditional vehicle.

Morgan Stanley earlier this month said Toyota Motor, Honda Motor and Hyundai Motor, including Kia, account for 9 out of 10 hybrid sales in the U.S. Representatives for those automakers said they are actively attempting to increase production and sales of hybrid vehicles in the U.S.

“While the transition to full battery electric transportation will take time, hybrids and plug-in hybrids will play an equally important role in Kia America’s near and mid-term goals,” Eric Watson, vice president of Kia America sales, said in a statement to CNBC.

And other companies, such as the Detroit automakers, are following suit.

The Detroit automakers have varying strategies for hybrid vehicles.

Ford Motor offers PHEVs but is leaning into HEVs, announcing plans in September to double sales of the V-6 hybrid model during the 2024 model year to roughly 20% in the U.S. It’s part of Ford CEO Jim Farley’s plans to quadruple the company’s production of gas-electric hybrids.

GM and Stellantis were forced to pay a combined $363.8 million in penalties for failing to meet federal fuel-economy standards for cars and trucks they produced in previous years, according to information published by the National Highway Traffic Safety Administration in June.

Such fines would significantly increase under current proposals by the Biden administration to improve fuel efficiency of vehicles and move toward EVs, according to automaker lobbying groups.

The American Automotive Policy Council, a group representing the Detroit Three, earlier this year said the automakers would face more than $14 billion in noncompliance penalties between 2027 and 2032 barring significant changes to their fleets’ overall fuel efficiency. U.S. automakers have separately warned the fines would cost $6.5 billion for GM, $3 billion at Stellantis and $1 billion at Ford, according to Reuters.

NHTSA in July proposed boosting fuel efficiency requirements by 2% per year for passenger cars and 4% per year for pickup trucks and SUVs from 2027 through 2032, resulting in a fleetwide average fuel efficiency of 58 mpg.

With EVs playing a lesser role than anticipated to boost those fleetwide averages, hybrids could save automakers millions.

“Even without electric vehicles, there’s an expectation that electrification of an internal combustion engine is going to be necessary to meet regulations anyway,” said Stephanie Brinley, principal automotive analyst at S&P Global Mobility.

The resurgence of hybrids is especially important for Toyota. The world’s largest automaker is considered the pioneer of traditional hybrids, with the Prius.

The company ironically became a target of environmental groups last year for its strategy to move forward with a mix of hybrids, PHEVs and EVs, which critics viewed as a lack of commitment to an all-electric future.

“People are finally seeing reality,” Toyota Chairman and former CEO Akio Toyoda, who has been heavily criticized for the slower approach on EVs, said in October regarding EVs, according to The Wall Street Journal.