As the industry shifts towards electric vehicles (EVs), automakers are increasingly turning to hybrids as a transitional step.

• With sales of all-electric vehicles not increasing as quickly as anticipated, major automakers are increasingly offering hybrid vehicles to meet customer needs.
• To meet consumer demand and avoid costly penalties related to federal fuel economy and emissions standards, automakers are reevaluating the feasibility of hybrid cars and trucks.
• Through November of this year, approximately 1.2 million hybrids were sold in the U.S., accounting for 8.3% of car sales. This represents a 2.8 percentage point increase compared to total sales last year.

Major automakers are increasingly meeting their customers halfway as sales of all-electric vehicles grow more slowly than expected.

An increasing number of companies are reevaluating the feasibility of hybrid vehicles to meet consumer preferences and avoid financial consequences due to federal fuel efficiency and emission regulations.

Despite the recent industry-wide messaging promoting all-electric vehicles, many auto companies are investing billions of dollars in EVs, and the Biden administration is pushing to increase the number of EVs on U.S. roadways as quickly as possible.

Hybrid vehicles, which combine traditional internal combustion engines with EV battery technologies, could assist the automotive industry in reducing fuel consumption and emissions in the short-term, while also gradually transitioning consumers to electric vehicles.

In 2023, the sales of traditional hybrid electric vehicles (HEVs) such as the Toyota Prius are surpassing those of all-electric vehicles, according to Edmunds. HEVs accounted for 8.3% of U.S. car sales, which is approximately 1.2 million vehicles sold, through November of this year. This represents a 2.8 percentage point increase compared to total sales last year.

In December, EVs accounted for 6.9% of sales, which is approximately 976,560 units, representing a 1.7 percentage point increase compared to the previous year. PHEVs made up only 1% of U.S. sales through November.

Despite the recent discussions about the shift towards electrification and the decline of hybrids, Jessica Caldwell, Edmunds executive director of insights, stated that hybrids are not extinct. Many consumers are interested in electrification but may not be fully ready to transition to fully electric vehicles.

Hybrids are more affordable than EVs and PHEVs, with an average cost of $42,381, according to Edmunds. This is significantly lower than the $59,400 average for an EV, $60,700 for a PHEV, and $44,800 for a traditional vehicle.

Morgan Stanley reported earlier this month that Kia and other automakers account for 9 out of 10 hybrid sales in the U.S. The representatives for these automakers stated that they are actively working to increase production and sales of hybrid vehicles in the U.S.

Kia America's near and mid-term goals will be equally important for hybrids and plug-in hybrids, although the transition to full battery electric transportation will take time, according to Eric Watson, vice president of Kia America sales.

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

Detroit Three automakers

The Detroit automakers have varying strategies for hybrid vehicles.

Ford is shifting its focus from PHEVs to HEVs, with plans to double sales of the V-6 hybrid model during the 2024 model year to about 20% in the U.S. This aligns with Ford CEO Jim Farley's goal to quadruple the company's production of gas-electric hybrids.

Through November of this year, Ford's hybrid sales have increased by 23% compared to the same period in 2022, reaching over 121,000 units, which represents 6.8% of its total sales. In contrast, Ford's EV sales have also risen by 16.2% to approximately 62,500 units, accounting for 3.5% of its total sales.

PHEVs are the focus of Chrysler's electrification strategy, with the company being the top seller of these vehicles in the U.S. In the third quarter, PHEVs accounted for about 10% of Chrysler's sales, with Jeep Wrangler and Grand Cherokee SUVs leading the way.

The company is not yet prepared to change its EV plans, which aim to provide only all-electric vehicles by 2035.

During the 2010s, the Chevrolet Volt was the first plug-in electric vehicle to be led by GM. However, the company discontinued the vehicle in early 2019 due to concerns about demand and cost.

The Corvette E-Ray is the only hybrid vehicle offered by the automaker in the U.S. since then, except for PHEVs in China.

GM CEO Mary Barra stated on Monday during an Automotive Press Association meeting in Detroit that the company still has a plan in place to transition to all light-duty vehicles being electric by 2035. However, she emphasized that the plan will be adjusted based on customer demand and location. Barra clarified that the company will not solely rely on building electric vehicles and expect customers to purchase them, but rather will be guided by the customer's preferences.

In August, GM President Mark Reuss stated on CNBC that he was open to hybrids as a means of complying with federal regulations.

If we must comply with the law, then we must comply with the law. If there are regulations imposed on us, we will examine all our options to meet them.

Federal regulations

The federal government's fines for emissions and low fuel economies of larger SUVs and trucks have led major auto companies, including the Detroit automakers, to rely on EVs to offset their costs.

In June, the National Highway Traffic Safety Administration published information revealing that GM and Stellantis had to pay a combined $363.8 million in penalties for not meeting federal fuel-economy standards for the cars and trucks they produced in previous years.

The Biden administration's proposals to enhance fuel efficiency in vehicles and transition to EVs would result in substantial fines, according to automaker lobbying groups.

The American Automotive Policy Council, representing the Detroit Three, stated that the automakers would face over $14 billion in noncompliance penalties between 2027 and 2032 unless they made significant changes to their fleets' fuel efficiency. According to Reuters, U.S. automakers separately warned that the fines would cost $6.5 billion for GM, $3 billion at Stellantis, and $1 billion at Ford.

The NHTSA proposed increasing fuel efficiency requirements for passenger cars and pickup trucks and SUVs by 2% and 4% respectively from 2027 to 2032, resulting in a fleetwide average fuel efficiency of 58 mpg.

Hybrids could save automakers millions if EVs do not play a significant role in boosting fleetwide averages.

According to Stephanie Brinley, principal automotive analyst at S&P Global Mobility, even if electric vehicles are not used, the electrification of internal combustion engines is still expected to occur to meet regulations.

Industry leader

The revival of hybrids is crucial for Toyota, as it is widely recognized as the leader in traditional hybrid vehicles, with the Prius.

Last year, environmental groups criticized the company for its hybrid, PHEV, and EV strategy, viewing it as insufficient commitment to an all-electric future.

Toyota's stance, which remains unchanged, is that it is fulfilling consumer requirements and anticipating a more gradual worldwide adoption of electric vehicles, with some markets transitioning to EVs at different rates.

The company claims that it considers the entire environmental impact of manufacturing EVs compared to hybrid electrified vehicles, stating that it can produce eight 40-mile plug-in hybrids for every one 320-mile battery electric vehicle and reduce carbon emissions by up to eight times.

In October, Akio Toyoda, the former CEO and current chairman of Toyota, stated in The Wall Street Journal that people are beginning to understand the truth about EVs.