Not Ready to Go Full EV? Some Car Companies Bet Bigger on Hybrids

U.S. car buyers on average have been snapping up hybrids within just 12 days from their arrival on dealership lots this year through August, compared with 16 days for EVs and 23 days for internal-combustion vehicles, according to data from consumer-research site Edmunds.com.

After surging 73% last year, hybrid sales slipped 5% through August this year, according to research firm Motor Intelligence, largely because of supply constraints at Toyota, the hybrid sales leader. Some dealers say their hybrid backlog stretches into the thousands of vehicles.

While auto executives increasingly espouse a view that the market is headed toward all-electric vehicles, their strategies diverge on whether that path should include hybrids, which combine an internal combustion engine with a small battery and electric motor to save fuel. Some auto makers have introduced more plug-in hybrids, which use a larger battery to allow the car to travel solely on electric power—typically for a few dozen miles—before a gas engine kicks in.

Toyota, Sweden’s

Volvo Car

AB and Korea’s

Hyundai Motor Co.

are among those betting that some customers aren’t ready to rely merely on electric power. Each of the companies has rolled out more hybrid models over the past few years, while also introducing full EVs.

“There are a lot of people who will leap into an EV, and there are others who will prefer a hybrid, especially depending on what part of the country you live in,” said Randy Parker, chief executive of Hyundai Motor America.

The allegiance to hybrids is a bet that Wall Street eventually will reward the inclusion of internal-combustion engines as part of auto makers’ long-range strategies. Investors in recent years have strongly favored pure-play EV companies, including heavyweight

Tesla Inc.

and startups such as

Rivian Automotive Inc.,

whose valuation rivals some traditional auto makers despite heavy losses and relatively small sales.

General Motors Co.

and

Volkswagen AG

are among auto makers that have played down hybrids or stopped offering them, and instead are focusing their efforts on rolling out dozens of fully electric models in coming years.

“Our strategy is focused on battery electric vehicles as they represent the best solution,” said GM CEO

Mary Barra

during the company’s annual shareholder meeting in June.

Car makers investing in hybrids say EVs are a poor fit for customers in many parts of the world. Toyota says it sells millions of vehicles in developing countries, where the electricity supply is unreliable.

Even in the U.S., large portions of the country lack access to widely available charging infrastructure, or have longer commutes that make less sense for battery-powered vehicles, executives say.

“The coastal areas, the East and West Coast, that’s electrifying much quicker than the interior of the country,” said Volvo CEO

Jim Rowan.

Toyota pioneered hybrid cars in the late 1990s with the Prius, which quickly became a strong seller and even a social statement for environmentalists and such celebrities as Leonardo DiCaprio. Hybrid cars became an important way for auto makers to meet tightening regulations on tailpipe emissions in the U.S. and abroad.

Toyota remains the No. 1 hybrid seller in the U.S., buoyed by a gas-electric version of the RAV4 sport-utility vehicle, the nation’s top-selling hybrid.

Ford Motor Co.

, Hyundai and the German luxury players also have added hybrid options to their lineups in recent years.

Toyota has said that governments aiming to cut carbon emissions should encourage hybrid sales. Last month, Toyota leader

Akio Toyoda

told reporters the company could make eight plug-in hybrids with the same number of batteries in a single 320-mile-range EV. Those eight plug-in cars would help cut carbon emissions more than the one electric car, he said.

With gas prices hovering around $4 a gallon in many parts of the U.S., customers who want fuel-sipping models have been turning to hybrids. Gas-electric vehicles also are getting a look from buyers who might want EVs, but don’t live in areas with easy access to reliable charging stations, dealers and executives say.

Toyota said hybrids, including plug-in cars, accounted for around 20% of U.S. sales in September, but has said that rate could have been double if not for supply constraints.

Overall, hybrid vehicles represented 5.6% of U.S. sales through September, while EVs were 4.9% of the market, according to data from research firm Motor Intelligence.

“If it has a hybrid engine on it, it has a gold star in the customer’s mind,” said Adam Simms, CEO of California-based dealership group Price-Simms Inc. He estimates that he could sell 6,000 more hybrids if he had the supply.

Longo Toyota in El Monte, Calif., has around 1,500 orders for the hybrid RAV4, a backlog of more than a year, said dealership president Doug Eroh. “The demand we have for hybrids far exceeds the supply we have for hybrids,” he said.

Write to Sean McLain at [email protected]