BEV Aspirations Meet Reality: Hybrids Poised for Comeback

The growth of battery-electric vehicles is an inevitability. That’s certainly been the prevailing wisdom among auto industry pundits and executives in recent years. However, marketplace realities including vehicle cost, range anxiety and charging infrastructure limitations have curtailed consumer demand, pushing up BEV inventories and slowing BEV movement.

In response, the Biden Admin. recently eased regulatory restrictions, resulting in a reduction of 2032 BEV production targets from 67% to 35%. With that shift, OEMs have pulled back on their investments and reduced their BEV scale and scope. In addition, the regulatory adjustments are more favorable toward hybrids, ensuring that they are more likely to play a significant role in product mixes in the coming years.

Battery Range, Infrastructure Issues Drive BEV Skepticism

Even among shoppers contemplating a move to BEVs, there is still significant skepticism. A recent McKinsey study found 42% of interested BEV buyers do not intend to switch from internal-combustion-engine vehicles until battery range and infrastructure improve.

However, consumers remain open to eco-friendly options. According to a recent Accenture analysis, 64% of consumers consider themselves “sustainability-minded” and would prefer their next vehicle to be an alternative to being gas-powered. This sentiment, coupled with the current obstacles in the BEV space, opens the door for OEMs with well-developed hybrid offerings to succeed until fully electric capabilities become more mature.

Hybrids have a long history in the marketplace and a comfort factor with consumers that BEVs do not currently enjoy, and recent trends point to a strong foundation of interest in these vehicles. Consider the following statistics from Cloud Theory’s Horizon data platform:

In Q1 2024, hybrids’ year-over-year share of vehicle sales grew by 3.2 percentage points (11.6% from 8.4% in Q1 2023).

Meanwhile, non-Tesla BEVs’ share grew only 1 percentage point year-over-year (2.6% in Q1 2023 to 3.6% in Q1 2024).  Hybrids’ inventory share is significantly less than sales (8% to 11.6%), indicating that supply still has room to grow to meet this demand.

Based on these metrics and the changing regulatory picture, it is safe to assume that hybrids will take on a larger role in vehicle offerings and consumer choices in the medium and longer term.

OEMs Add Hybrids Back in the Mix

Manufacturers are already starting to change production plans and their advertising messaging to reflect the increased importance of hybrid vehicles. Ford, for example, is expanding its hybrid EV offerings. By the end of the decade, the company expects to offer hybrid powertrains across its entire Ford Blue lineup in North America. In support of this shift, Ford launched a new ad campaign – “Your Vehicle, Your Choice” – which focuses on how the company offers “a range of gas, hybrid, and electric products to suit almost every customer’s need.”

General Motors CEO Mary Barra, who had previously declared that the company was fully committed to an electric-vehicle future, has taken a more balanced position in 2024. Stating that GM plans to bring plug-in hybrid technology back to North America, Barra was quoted in The Detroit News as saying GM was doing so “to help us comply with the more stringent fuel economy and tailpipe emission standards that are being proposed.” That reporting also pointed to “a reversal from GM’s focus on battery-electric vehicles as it watches the pace of (B)EV sales slow.”

Hybrid Shift Creates Challenge for BEV-Only OEMs

The shift to hybrids will likely benefit OEMs that already have a strong hybrid lineup, while BEV-only manufacturers will face an additional hurdle. A CNN report pointed to a reversion back to Toyota’s hybrid focus after its CEO had previously signaled a pivot toward BEVs. “The Japanese company has done little to embrace a fully electric future, instead sticking firmly to its wildly popular hybrid cars.” Other OEMs that have well-established hybrid lines – such as Hyundai, Honda and Stellantis – now have multiple pathways to regulatory compliance.

BEV-only manufacturers such as Tesla and Rivian, on the other hand, are facing a more difficult road forward. Tesla, for example, has already endured price reductions, executive departures and poor reviews of its recently launched Cybertruck, and has watched its stock price fall nearly 30% from December 2023 to late May. Additionally, Tesla has signaled significant layoffs within its global workforce to reduce costs, according to a recent report. The reduced barriers to hybrids add yet another challenge to the mix for OEMs that are solely focused on BEVs.

BEVs Will Still Grow, But at a More Realistic Pace

Even at the lower 35% target level, the reduced EPA requirements ensure BEVs will play a significantly more prominent role in future industry offerings and consumer choices going forward. However, the previous hyper-aggressive production levels and timelines driven by EPA regulations have given way to a more measured approach that reflects manufacturers’ current capabilities to produce these vehicles, as well as consumers’ comfort and financial realities in purchasing them.

Meanwhile, hybrid vehicles have a brighter future and will play a key role in bridging the gap between today’s ICE vehicles and a BEV-driven future.

While the original BEV intentions proved unrealistic in the current timeframe, this “hybrid” approach (pun intended) is still a win for those who aspire to help the planet.

Rick Wainschel is vice president of Data Science & Analytics for Cloud Theory, a software and AI company.