Hybrid was the future once. The petrol and electric combo that replaced revving engines with a more tranquil experience was a novelty and the cleanest option in a world looking for ways to ease itself off fossil fuels. That was until the proliferation of ‘pure play’ battery EVs (BEVs) made the hybrid use case obsolete. In comparison, adopting hybrids looked like a half measure for the half-hearted environmentalist. Hybrids were headed for the dustbin of history, while their owners were made subjects of satirical memes.
Fast forward to 2024 and hybrid is the future once more. The urgency to reduce carbon emissions combined with high inflation are driving consumers back into the embrace of hybrid EVs (HEVs). This week’s Chart Room, based on company data compiled by Goldman Sachs, shows that a consumer ditching an internal combustion engine (ICE) vehicle for something greener would pay USD $4,100 more for a BEV, and just USD $1,800 more for an HEV. The HEV will save enough energy to offset that additional cost (versus owning an ICE) in 3.6 years; a BEV would take 5.1 years. Supported by petrol at faster speeds, HEV owners also don’t have to worry about ‘range anxiety’ - the fear of running out of power when there’s no charging station in sight.
The hybrid surge is responsible for the most profitable year ever for Japanese carmakers Toyota and Honda. Along with several Korean peers, they’ve been betting heavily on hybrid technology for decades - a natural consequence of their countries’ energy mix, which is more reliant on natural gas and thermal power than Europe and the US. But those trying to emulate their success will miss the boat. As the chart shows, battery technology - the bulk of the cost of BEVs - is set to accelerate by 2030 and significantly reduce BEVs’ price premium over ICE and its payback period, making them more attractive than HEVs. By the time latecomers catch up in technology, hybrid will no longer be the future. That’s why even carmakers benefitting from the hybrid wave are pivoting to battery technology - and it’s our belief that's where investors should focus their attention.
