Why consumers are snapping up hybrids—and what it means for the energy transition

The auto industry has placed big bets on the future being electric—but a compromise solution is gaining traction of late: the humble hybrid.

Hybrid vehicles pair combustion engines with electric motors, offering the best of both worlds, according to some. Hybrids have been enjoying a hot streak, capturing more than 8% of the US new-vehicle market last year. Amid an electric identity crisis playing out in the industry, automakers are putting a renewed emphasis on gasoline-electric vehicles—bolstering sales and earnings.

Strong hybrid sales recently boosted Toyota to blockbuster profits. General Motors announced plans to reintroduce hybrids into its vehicle lineup. And Ford CEO Jim Farley told investors during the company’s Q4 earnings call that hybrids “will play an increasingly important role in our industry’s transition,” as the automaker forecasts a whopping 40% jump in its hybrid sales this year.

So what’s driving this trend?

Pick me, choose me

One factor could be that there are more hybrid options on the market for buyers to choose from, including SUV models and hybrid versions of models consumers are already familiar with, KC Boyce, VP, automotive and mobility and energy for Escalent, told Tech Brew.

Furthermore, Boyce said, consumers are feeling pressure on their wallets, in part because higher interest rates have increased the cost of monthly car payments. Combine that with the fact that battery-electric vehicles (BEVs) tend to come with a higher price tag, and hybrids can start to look pretty appealing.

“Part of the consumer decision-making dynamic is, ‘Hey, the hybrid can save me money on gas. That’s good because I’m paying more for everything else right now. And I don’t have to spend quite as much on a vehicle payment as I would if I went from an ICE vehicle to a battery-electric vehicle,’” Boyce said. “So the hybrid’s kind of the sweet spot there.”

In October of last year, 9.9% of households with gas-powered vehicles that were in the market for a new car opted for a hybrid, according to a recent S&P Global Mobility analysis, while 5.7% of those households went with a BEV.

The analysis pointed to several factors in consumers’ buying choices, including range and charging concerns with BEVs and the smaller price difference between ICE vehicles and hybrids. Households that switched from a gas-powered vehicle to a conventional hybrid paid $5 less than the average monthly car payment for gas-powered vehicles ($675), while BEVs, on average, paid $153 more.

On Ford’s earnings call, Farley highlighted the ways the US EV transition is playing out unevenly across different regions and customer groups. He noted that in California, for example, hybrid and EV versions made up 50% of F-150 sales in Q4. In Dallas, meanwhile, the ICE version made up 85% of sales of the best-selling truck.

“Hybrid just fits specific customer use cases. On a Maverick pickup truck, our hybrid is focused on mileage and efficiency, and they do the math very clearly and they don’t have to change their behaviors,” he said. “On [the] F-150 hybrid, they get the same benefits, even when they’re towing, on fuel efficiency…and margins on hybrids are closer to ICE, much higher than EV margins.”

Toyota’s stock, meanwhile, soared as the Japanese automaker’s controversial approach to electrification has looked increasingly attractive to investors. Mazda, which has also been criticized for its slowness to electrify, has said that it expects to field a fully electrified lineup by 2030, with hybrids making up 75% of its vehicles, Yahoo Finance reported.

Quit stalling

Not everyone is sold on this measured approach. Toyota, in particular, has drawn the attention of environmental advocates who are pushing for more decisive moves to decarbonize transportation.

In a statement to Tech Brew, Sierra Club Clean Transportation for All Director Katherine García criticized Toyota’s “inability to innovate and move beyond fossil-fueled combustion engines,” claiming that the automaker is “deceiving consumers by mislabeling hybrid vehicles—which have engines and tailpipes—‘electrified’ in marketing campaigns.”

“The reality is: These hybrid cars are solely powered by gas and produce climate and air pollution,” she said. “Automakers have stalled for decades rather than preparing for a transition to all-electric vehicles. It’s time they deliver.”

Toyota didn’t immediately respond to Tech Brew’s request for comment. NPR noted in a story last year that Toyota has long taken the position that hybrids should be part of the strategy to address the climate crisis. A Toyota executive told the outlet that the company is “taking a pragmatic approach” and noted that hybrids are less expensive than BEVs and don’t require drivers to change their behavior.

But Boyce expects that, ultimately, the hybrid trend won’t put much of a dent in the transition to fully electric vehicles. He said consumers have indicated that once interest rates come down and EVs built with Tesla’s charging port become available in the near future, they will be more interested in BEVs than hybrids.

“I don’t know that the growth in hybrid necessarily is a negative against battery electric, but it muddies the water in terms of, ‘Is the transition going to be cleanly to a full-electric powertrain?’” he said. “And for many consumers, the answer seems to be ‘Not quite yet.’”