2023 was the year of EV investment, but consumers still prefer hybrids
It will take more than a price cut to get some consumers to choose electric vehicles over hybrids. “(Electric vehicles) are a huge shift in the internal combustion world, it’s a whole lifestyle change,” said Stephanie Valdez Streaty, director of mobility R&D at Cox Automotive. “Reality It’s the reliability of the infrastructure that is a challenge.” Despite all the investment pouring into electric vehicles, hybrids’ market share will accelerate in 2023. Edmunds data shows that from October 2022 to October this year, the total market share of hybrid vehicles grew from 6.5% to 11.4%. During the same period, the market share of electric vehicles grew more slowly, expanding from 6% to 7.5%. Valdez Streaty said concerns about EV range and price remain top of mind for consumers hesitant to switch to all-electric vehicles, especially in parts of the country where charging stations are less available. Hybrids are more comfortable, she said, considering they can be on the road longer and still have the option of gasoline. Electric vehicle prices slashed Even as electric vehicle manufacturers from Tesla to traditional auto companies such as Ford and General Motors continue to slash the prices of their electric vehicles, sales of hybrid vehicles continue to rise. Edmunds data shows the average discount on the manufacturer’s suggested retail price (MSRP) of electric vehicles last month was $2,601, down from $3,092 in January. Meanwhile, hybrid shoppers were only rewarded about $400 in October. While Wall Street analysts remain bullish on the long-term prospects for EV adoption, the pace of the sales slowdown cannot be ignored. A more nuanced picture could mean companies including Ford and Toyota are in a better position to capitalize on hybrid market share gains while remaining fully electrified. Still, Goldman Sachs said the transition to all-electric appears inevitable. “Since the sale of ICE (internal combustion engine powered) vehicles is prohibited in some regions from 2035, and automobiles are a long-term industry, we believe that the management teams and boards of directors of traditional OEMs will not plan to rely on ICE business in the next 10-20 years, BYD and Tesla Market leaders such as Tesla have demonstrated the potential profitability of electric vehicles,” analyst Mark Delaney said in a report on November 13. The leaders in the mixed game have stayed the course. Toyota’s 2024 Prius is often called the “gold standard” of hybrids and was named Car of the Year by MotorTrend. Toyota also made a bold move by announcing that its 2025 Camry, the company’s best-selling car in the U.S., will only be available in hybrid form. David Christ, Toyota’s North American sales chief, told the Wall Street Journal in October that hybrids remain “a hot market.” Meanwhile, Honda recently debuted its hybrid Prelude concept car at the Los Angeles Auto Show. “The bridge to electric vehicles,” hybrids combine a traditional internal combustion engine with at least one electronic component to power the vehicle, said Michelle Krebs, executive analyst at Cox Automotive. Providing power, they have long surpassed electric vehicles in terms of sales and popularity. She believes hybrid sales could be higher if companies like Toyota faced less supply headwinds. Toyota’s hybrid lineup also includes sport utility vehicles and minivans like the RAV4 and Sienna, and the company also makes an all-electric option for the bZ4X model. Shares of U.S.-listed Toyota have risen more than 37% so far this year since the start of 2023. “Toyota and others see hybrids as a bridge to electric vehicles,” Krebs added. Toyota’s U.S.-listed shares have risen about 38% since the beginning of the year, and about 70% of analysts surveyed by FactSet maintained a buy rating. Consumers appear to be taking advantage of this bridge, forcing automakers to reassess their EV plans. Ford, General Motors and Tesla have all scrapped ambitious electric vehicle production goals as consumer adoption slows. Ford late last month delayed about $12 billion in investment in electric vehicle manufacturing due to concerns that consumers would be unwilling to pay a premium for all-electric vehicles. Meanwhile, Ford’s hybrid sales jumped 41% in the third quarter to 34,861 units, offsetting about 15% growth in electric vehicles between June and September. Ford sold a total of 500,504 vehicles during the quarter. Ford shares have fallen 11% since the start of 2023, and analysts are mixed on the stock. A FactSet survey showed that about 50% of analysts gave Ford a buy rating, and about 40% maintained a hold rating. Barclays analyst Dan Levy said in a mid-October report that Ford and General Motors remain popular stocks in the electric vehicle transition as adoption and sales slow down across the industry. Ford is the only one of the two companies to offer a hybrid option. “The transition to electric vehicles remains a major unanswered question,” Levy said. “Investors are broadly hopeful that Ford/GM will withdraw from their EV plans – which could support near/medium-term earnings.” F YTD Mountain Ford’s fleet includes hybrids in addition to electric vehicles. Levy also pointed to another dilemma as traditional automakers scale back investment in electric vehicles, allowing Tesla to gain more share as the market expands over the long term. “However, this exacerbates the OEM’s EV woes – divestment gives Tesla more time to extend its lead and means a longer path to breakeven,” he said. To be sure, electric cars are still much more expensive than hybrids. Edmunds data shows the average MSRP of an electric vehicle in October was $61,665. By comparison, the hybrid is about $19,000 cheaper at $42,653. Although the overall cost of hybrid vehicles will increase by 5.3% from October 2022 to October 2023, consumers still prefer hybrid vehicles over electric vehicles. There had been hopes that the tax credits would narrow the gap. The Biden administration’s inflation-cutting bill allows for a $7,500 tax credit for consumers who buy or lease new electric vehicles. The rules were intended to force manufacturers to build more cars in the United States, but the consequence was that a large number of electric vehicles were ineligible for the incentive. However, some consumers have taken advantage of a loophole in the guidance, which applies the credit to certain leased electric vehicles even if they are not entirely manufactured in the United States. Growth in hybrid sales is unlikely to spell doom and gloom for the EV market. In the long term. The industry, while slowing in recent months, remains a focus for global automakers and headwinds related to cost and production should ease over time. “As we see an increasing number of pure electric vehicles being offered by OEMs, covering a wider range of vehicle segments and price ranges. At the same time, costs should come down, while factors such as range, efficiency and fast charging are improving. In addition, many governments are targeting BMO Capital Markets analyst Tom Narayan in a Nov. 20 report. “The combination of these vehicle factors means BEV demand will ultimately become consumer-led. need. “
Svlook
