Even with gasoline prices near a four-year high, global sales of electric vehicles are slowing as consumers balk at steep prices and spotty charging infrastructure. In this odd climate, hybrid cars are hot again after a quarter-century out of the limelight. Automakers are selling more of them than ever, and in more countries, ramping up production to meet demand.
Hybrids accounted for about 14% of new cars sold in the U.S. last year, up from less than 3% in 2020. In Spain, hybrids make up almost half of all new cars; in Japan, more than half.
In the U.S., demand is expected to more than double over the next decade. Even California is back on the bandwagon, with hybrid registrations overtaking those of EVs in the second quarter.
“The consumer has spoken, and hybrids are a hit,” says David Christ, who leads the Toyota brand in North America. “We’re just going to keep building more.”
The gasoline-electric category has come a long way since the Toyota Prius arrived around the turn of the century. Where hybrids were once seen as a pit stop in the transition to fully electric vehicles, consumers are choosing them over EVs in greater numbers because they are usually cheaper, have a longer driving range and can be refueled at any gas station. For automakers battered by inflation and tariffs, hybrids are also attractive, fetching a premium of $1,500 to $3,000 per vehicle over wholly gasoline-powered models, according to Edmunds.com.
Auto executives say they still think EVs will win out over time, but that could take decades longer than anticipated. In the meantime, Chinese carmakers are flooding international markets with hybrids, catapulting the company BYD to the No. 2 spot globally, while companies like Ford and Nissan, which had prioritized electric or gasoline models, are scrambling to add more hybrids to their lineups.
Analysts see hybrids accounting for as much as 40% of global production by 2030 and continuing to grow until at least the middle of the century. One factor likely to accelerate demand in the near term: war in the Middle East.
“The war is an area of concern, but even after it concludes, we expect high oil prices to persist,” says Song Ho-sung, chief executive officer of Kia, which is owned by Hyundai Motor Group. “This environment will push the appetite for EVs and hybrids higher.”
Toyota Motor Corp., which introduced much of the world to hybrids and stood behind them when the category went out of fashion, was right all along. The Japanese company is the top producer of hybrids worldwide, and the format is now standard for most Toyota models. U.S. demand for hybrid versions of its RAV4 compact crossover is so strong that owners are selling them used for more than they paid initially, a market dynamic that’s practically unheard of. Their popularity is a big reason Toyota is on track to retake the lead in U.S. auto sales this year from General Motors Co.
At Toyota’s plant in rural Kentucky, production of the latest RAV4 started June 22. Unlike its predecessor, which came in gasoline and hybrid versions, this generation is hybrid-only. “For all of the vehicles we are developing, the base assumption right now is that it should be 100% hybrid,” says Cooper Ericksen, Toyota’s U.S. head of product planning.
This shift began six years ago when Toyota stopped offering a gas-only version of the Sienna minivan. “I cannot tell you the amount of hand-wringing we had inside the company about that,” Ericksen says. “What happened with Sienna, honestly, surprised us a bit, because it was super popular — even after we raised the price. That gave us the confidence to start relooking at our product lines.”
Advances in technology are making hybrids more appealing and cost-effective. Toyota’s newest power trains are smaller and lighter, helped by fusing several components into a single unit, while the engines are more productive. Improvements to battery systems, supply chain and increased volume make the cars cheaper to build.
In a bid to spread the gas-electric gospel, Toyota in 2019 took the unusual step of giving away licenses to its hybrid-related patents. By increasing mainstream acceptance of hybrids, it’s creating a larger supply chain for parts. The company had received more than 300 inquiries as of April, and it entered agreements with more than 20 companies to borrow its technology at no cost, though it declined to disclose the names of its licensees.
In Mexico, even without a discount, shoppers are easily swayed in favor of hybrids, says Angel Gutierrez, a sales advisor to several dealerships in Mexico who sells BYD, Geely and Toyota vehicles. “When a customer walks in looking for a gasoline car, 70% leave with a hybrid,” he says. “Once you show them the fuel savings comparison, the decision practically makes itself.”
Fernando Benavides was already sold on the idea of a hybrid when he was looking for his first car. He wanted to keep fuel costs down without relying entirely on battery charging. He was less enthused, however, about owning one of the Chinese-made cars taking over the streets of Mexico.
“People have always been wary of Chinese products, thinking they don’t work well or don’t last long, but a friend convinced me,” says Benavides, who settled on a BYD Song Plus plug-in hybrid compact SUV.
BYD also makes low-cost hybrid sedans and pickup trucks that have proved particularly popular in Latin America and Southeast Asia. They may be a little too popular in Europe, where government officials are, according to German newspaper Handelsblatt, considering tariffs to block imports of Chinese plug-in hybrids. On July 24, Volkswagen AG Chief Executive Oliver Blume called on the European Union to create rules for a more “level playing field,” specifically noting the threat from surging sales of hybrids made by Chinese companies.
While hybrids appear to be here for the foreseeable future, there are reasons to believe the technology won’t last forever. The cars depend on two power trains — an internal combustion engine and an electric motor — which increases their cost, complexity and weight. And because one of those engine systems has been around for more than 100 years, automakers say they’ve come close to squeezing the maximum amount of efficiency possible out of it.
That’s left owners of some of America’s largest car brands skeptical of hybrids — and allowed Asian carmakers to capitalize on the renewed demand. GM, which had once indicated it would add hybrid models in 2027, more recently signaled it would backtrack. “We do think EVs are the endgame,” GM Chief Executive Mary Barra told Fox News in April.
Stellantis NV, which owns Jeep, retired popular hybrid models, including the Chrysler Pacifica minivan, to prioritize gas variants. Ford Motor Co. discontinued production of the Ford Escape hybrid late last year, but on July 28, Chief Executive Jim Farley pledged to bring hybrid technology “across our entire lineup over the next several years.” Meanwhile, deliveries of hybrids in the U.S. rose 19% in the first half of this year, according to the National Automobile Dealers Assn.
Nowhere in the world are expectations for hybrids higher than in India, where sales are expected to jump by more than a quarter over the next decade, according to GlobalData. Today it’s rare to see a hybrid on the streets of Delhi or Mumbai. Just a handful of carmakers — including Toyota, Maruti Suzuki and Honda — sell them there, compared with nearly a dozen manufacturers of EVs.
At the Toyota dealership in Coimbatore, a city in the southern state of Tamil Nadu, hybrids account for as much as half of sales. Manager Sai Vigneshwar says that number could be even higher if Toyota offered hybrid versions of its subcompact models in India. “When customers buy a hybrid and see the fuel savings, they come to ask for options in smaller vehicles — which we don’t have now,” he says.
That will change soon. Toyota and other Japanese automakers are expected to build out their lineups in the country, and BYD, JSW and MG Motor are all preparing plug-in hybrid releases there. Hyundai, Kia and Renault are coming too. Horse Powertrain, a hybrid-focused joint venture backed by Renault and China’s Geely, is putting $370 million into India to build advanced hybrid powertrains and engines.
Besides the limited selection, hybrids also face efforts by the Indian central government and those of several states to persuade drivers to ditch fossil fuels entirely. A program in India, similar to ones in China, gives EV owners tax breaks and exemptions from registration fees. That should help EVs exceed hybrids in volume there through the end of the decade.
When Madhav Bhushan, a 30-year-old financial advisor in Delhi, went shopping for his next car, he considered a bunch of EVs. He already owns one, a Hyundai Ioniq 5, and figured he’d go electric for his second car. He compared models from several brands, including the all-electric BMW iX1, but ended up in the driver’s seat of a Toyota Camry hybrid.
Bhushan is so smitten that he’s considering going all-in on hybrids. “There’s no range anxiety, and there’s considerable savings,” he says. “They offer the best of both worlds.”
Dawson, Hilaire and Sachdev write for Bloomberg. Bloomberg writers Hyonhee Shin and Max Rivera contributed to this report.
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