For years, the automotive industry has been electrified by the promise of electric vehicles (EVs), with governments worldwide pushing for a transition away from internal combustion engine (ICE) vehicles through incentives, emissions regulations, and ambitious phase-out plans. However, recent data reveals that EV sales growth is slowing, falling short of the industry’s lofty expectations. In response, major automakers are pivoting back to hybrid vehicles—both traditional hybrids (HEVs) and plug-in hybrids (PHEVs)—as a pragmatic bridge to electrification. This shift raises critical questions for investors: Is Tesla, the EV pioneer, still a compelling buy? Will the market bifurcate into Tesla-dominated EVs versus a hybrid resurgence led by legacy automakers? This article explores these dynamics, backed by data trends, profitability insights, and Tesla’s recent earnings.
As EV mandates are being lifted, we can expect a continued increase in hybrid sales, with Tesla emerging as the sole survivor, and in my opinion, a good investment. We do not give investment advice, and Tesla is not just an EV manufacturer, as you can tell by their last earnings update, which I included below.
We will be covering this on the Monday morning podcast with David Blackmon, Irina Slav, Tammy Nemeth, and Stu Turley on the Energy Realities podcast.
EV, Hybrid, and ICE Sales Trends (2021–2025)
The U.S. automotive market has seen significant shifts in vehicle powertrain preferences over the past few years, driven by consumer demand, economic factors, and policy changes. Below is a summary of sales and market share trends for EVs, hybrids, and ICE vehicles from 2021 to early 2025, based on data from Edmunds, Cox Automotive, and the U.S. Energy Information Administration (EIA).
-
2021:
-
EV Sales: 389,410 units (2.6% market share)
-
Hybrid Sales (HEV + PHEV): 650,000 units (4.3% market share)
-
ICE Sales: ~13.8 million units (91.8% market share)
-
Context: EV sales were growing rapidly, driven by early adopters, low interest rates, and Tesla’s dominance (80% of U.S. EV sales). Hybrids were less popular, overshadowed by the EV hype.
-
-
2022:
-
EV Sales: 713,145 units (4.7% market share)
-
Hybrid Sales: 800,000 units (5.3% market share)
-
ICE Sales: ~13.5 million units (89.3% market share)
-
Context: EV sales nearly doubled, fueled by new models and federal tax credits under the Inflation Reduction Act. Hybrid sales grew modestly, with Toyota leading the segment.
-
-
2023:
-
EV Sales: 1,013,000 units (6.9% market share)
-
Hybrid Sales: 1,148,000 units (7.8% market share, including 148,000 PHEVs)
-
ICE Sales: ~12.3 million units (84.0% market share)
-
Context: Hybrid sales surged 76% year-over-year, outpacing EV growth. Consumers cited high EV costs, range anxiety, and charging infrastructure limitations as barriers. Tesla’s U.S. EV market share dropped to 55%.
-
-
2024:
-
EV Sales: 1,200,000 units (7.7% market share)
-
Hybrid Sales: ~1,500,000 units (9.6% HEV, 2.0% PHEV, total 11.6% market share)
-
ICE Sales: ~12.6 million units (80.8% market share)
-
Context: Hybrid sales continued to explode, growing 30.7% year-over-year in Q2 2024, while EV sales growth slowed to 11% in Q1. Tesla’s market share fell to 48.9% in Q2 2024, with legacy automakers like Ford, Chevrolet, Hyundai, and Kia gaining ground.
-
-
2025 (Q1 Projection):
-
EV Sales: ~300,000 units (7.9% market share, annualized)
-
Hybrid Sales: ~600,000 units (13.5% market share, annualized)
-
ICE Sales: ~3.5 million units (78.6% market share, annualized)
-
Context: Hybrid sales are projected to maintain strong growth (up 23% in July 2024 vs. July 2023), while EV sales may stall due to tariffs on imported vehicles and potential rollbacks of federal EV incentives.
-
Key Observations:
-
Hybrid sales have outpaced EV sales growth since 2023, with a 5x faster growth rate in February 2024 (Morgan Stanley).
-
ICE vehicles still dominate, but their market share has declined steadily from 91.8% in 2021 to 78.6% in early 2025.
-
EV sales growth is slowing globally (+22% in 2024 per Rho Motion), with Europe down 4% due to subsidy cuts, while hybrids are gaining traction even in EV-heavy markets like China (BYD sold 2.5 million hybrids in 2024).
Why the Pivot to Hybrids?
Several factors are driving automakers’ renewed focus on hybrids:
-
Consumer Hesitation with EVs: High upfront costs (average EV price: $55,167 in Q1 2024, down 9% year-over-year), range anxiety, and insufficient charging infrastructure deter buyers. Hybrids, with their dual powertrains, eliminate range concerns and are cheaper (price premium over ICE reduced to $1,500–$2,000 at Toyota).
-
Economic Uncertainty: Rising interest rates and proposed tariffs on imported vehicles/parts (e.g., U.S. sanctions) make consumers reluctant to invest in pricier EVs. Hybrids offer a cost-effective compromise.
-
Regulatory Flexibility: Hybrids help automakers meet CO2 emissions standards while remaining profitable, especially if EV mandates soften post-2024 U.S. election.
-
Proven Technology: Hybrids, available since the 1997 Toyota Prius, are reliable and benefit from decades of refinement, unlike newer EV models facing teething issues.
Notably, extended-range electric vehicles (EREVs)—plug-in hybrids with larger batteries and smaller gas engines—are gaining attention. Hyundai and Nissan are developing EREVs with ranges over 560 miles, offering EV-like efficiency at lower costs.
Profitability of Major Automakers
Profitability in the automotive sector varies significantly, with hybrids often proving more lucrative than EVs for legacy automakers:
-
Toyota: The hybrid leader reported a 2024 operating profit of $33.6 billion (¥4.9 trillion), driven by strong hybrid sales (40% of 10.8 million vehicles sold). Toyota’s focus on HEVs and PHEVs has shielded it from EV losses, with hybrids more profitable than ICE models.
-
Ford: Ford’s hybrid sales (e.g., 24% of F-150 sales in Q2 2024) are more profitable than its ICE vehicles. However, Ford reported EV losses of up to $5.5 billion in 2023, prompting a hybrid production ramp-up (doubling hybrid F-150 share to 20%).
-
General Motors (GM): GM’s pivot back to hybrids (after phasing them out in 2019) is driven by profitability concerns. GM lost billions on EVs in 2023 but expects hybrids to bolster margins as it reintroduces models like the Chevy Volt successor.
-
Hyundai/Kia: These brands saw robust EV sales growth (50%+ in Q1 2024) but are investing heavily in hybrids and EREVs, which offer better margins due to lower battery costs.
-
Stellantis: With hybrids like the Jeep Wrangler PHEV (50% of U.S. Wrangler sales in H2 2023), Stellantis maintains profitability despite EV investments. Its 2024 profit margin was ~10%, supported by a diversified powertrain lineup.
-
Tesla: Tesla remains the EV profitability benchmark, though margins have slipped (see below).
Loss-Making EV Ventures:
-
Many legacy automakers (e.g., Ford, GM, Volkswagen) lose money on EVs due to high battery costs and R&D expenses. Startups like Rivian, Lucid, and Fisker face severe financial strain, with Fisker filing for bankruptcy in 2024.
Tesla’s Earnings Summary
Tesla, the EV market leader, has faced headwinds in 2024, reflecting broader EV market challenges:
-
Q1 2024 Earnings:
-
Profit: $1.13 billion, down 55% from $2.51 billion in Q1 2023.
-
Revenue: $21.3 billion, down 9% year-over-year.
-
Vehicle Deliveries: 386,810 units globally, down 20% from Q4 2023 and 8.6% from Q1 2023.
-
Factors: Price cuts (initiated in late 2022) eroded margins, while hybrid competition and Red Sea shipping disruptions impacted production. Tesla earned $442 million in zero-emission credits from other automakers.
-
-
Q2 2024 Update:
-
Tesla’s U.S. EV market share fell to 48.9%, the first time below 50% since 2017. Global sales remained flat, with a 21% decline in U.S. sales compared to 2023.
-
Despite the slump, Tesla’s energy storage business grew, with 4.1 GWh deployed (+7% revenue to $1.6 billion).
-
-
Outlook:
-
CEO Elon Musk emphasized cost-cutting (e.g., $1 billion+ savings from workforce reductions) and new affordable models by mid-2025. Tesla is also investing in AI, autonomy, and its Semi factory, targeting production in late 2025.
-
Analysts expect Tesla’s EV sales to recover long-term, but 2025 may see flat growth due to tariffs and competition.
-
Comparison: Unlike legacy automakers, Tesla remains profitable on EVs, with net profits per vehicle (~$10,000 in Q3 2022) far exceeding competitors. However, its 2024 margin compression (4.8% industry average) and reliance on price cuts highlight vulnerabilities to hybrid competition.
Investor Perspective: Is Tesla a Good Buy?
As an investor, Tesla’s stock presents both opportunities and risks:
-
Bull Case:
-
Market Leadership: Despite a declining share, Tesla remains the dominant EV player globally, with unmatched brand loyalty and production scale (1.8 million vehicles in 2023).
-
Innovation Edge: Investments in AI, self-driving technology (FSD), and energy storage position Tesla for future growth beyond automotive.
-
Long-Term EV Growth: Global EV sales are projected to grow to 26% market share by 2030 (J.D. Power), and Tesla’s new affordable models could recapture demand.
-
Valuation: After a 15% stock drop in 2023, Tesla’s forward P/E (~60x) is high but justified by growth potential if autonomy succeeds.
-
-
Bear Case:
-
Competition: Legacy automakers (GM, VW, Ford) and Chinese rivals (BYD, Geely) are eroding Tesla’s share with cheaper EVs and hybrids. BYD’s 4.3 million sales (2.5 million hybrids) in 2024 pose a threat.
-
Margin Pressure: Price cuts and rising R&D costs have slashed profits, with Q1 2024 showing Tesla’s weakest earnings in years.
-
Policy Risks: Potential U.S. subsidy cuts under a new administration and European tariffs on Chinese EVs could disrupt Tesla’s growth.
-
Musk Factor: Elon Musk’s controversial public persona (e.g., endorsing far-right parties in Europe) has hurt Tesla’s brand, with a 43% sales drop in Europe in early 2025.
-
Verdict: Tesla is a high-risk, high-reward buy. Its long-term potential in EVs and autonomy is compelling, but near-term challenges—competition, margins, and policy uncertainty—suggest caution. Investors should monitor Q2 2025 earnings and new model launches.
Will the Market Bifurcate to Tesla vs. Hybrids?
The automotive market is unlikely to fully bifurcate into Tesla-dominated EVs versus hybrids, but a polarized landscape is emerging:
-
Tesla’s EV Stronghold: Tesla will likely retain leadership in the premium EV segment, leveraging its software, charging network (NACS adopted by Ford, GM, etc.), and autonomy ambitions. However, its mass-market push faces stiff competition from BYD and legacy automakers’ affordable EVs.
-
Hybrid Resurgence: Legacy automakers like Toyota, Ford, and Hyundai are capitalizing on hybrids’ profitability and consumer appeal. North American hybrid production could hit 20% of light-vehicle output by 2025 (vs. 14% for EVs), per AutoForecast Solutions. Chinese automakers, including BYD, are also prioritizing hybrids internationally.
-
Middle Ground: The rise of EREVs and PHEVs blurs the line between EVs and hybrids, offering EV-like efficiency with ICE reliability. This segment could capture significant market share, challenging both Tesla and traditional hybrids.
-
Policy and Infrastructure: Government policies (e.g., Biden’s 60% EV target by 2030 or potential Trump-era rollbacks) and charging infrastructure expansion will shape the split. If EV adoption stalls, hybrids could dominate through 2030.
Prediction: The market will segment into three tiers: premium EVs (led by Tesla, BMW, VW), affordable EVs (BYD, GM, Ford), and hybrids/EREVs (Toyota, Hyundai, Stellantis). Tesla will remain a leader but won’t monopolize EVs, while hybrids will thrive as a transitional technology.
Conclusion
The pivot to hybrids reflects a pragmatic response to EV adoption challenges, with legacy automakers leveraging proven technology to meet consumer and regulatory demands. Toyota, Ford, GM, Hyundai, and Stellantis are reaping profits from hybrids, while Tesla grapples with margin erosion despite its EV dominance. For investors, Tesla offers long-term upside but faces near-term risks from competition and policy shifts. The market is unlikely to split cleanly into Tesla vs. hybrids, instead evolving into a diverse ecosystem where EVs, hybrids, and EREVs coexist. As the energy transition unfolds, automakers’ ability to balance profitability and innovation will determine the winners in this dynamic landscape.
Energy news and help invest in energy projects. Click here to learn more
Crude Oil, LNG, Jet Fuel price quote
ENB Top News
ENB
Energy Dashboard
ENB Podcast
ENB Substack
Sources
-
Edmunds: Electric Car Sales (2025)
-
Cox Automotive: EV Sales Reports (2024)
-
U.S. Energy Information Administration: Electric and Hybrid Vehicle Sales (2024)
-
Morgan Stanley: Hybrid vs. EV Sales Trends (2024)
-
OilPrice.com: Automakers Pivot to Hybrids (2025)
-
TechCrunch: Tesla Q1 2024 Earnings (2024)
-
Reuters: U.S. Automakers Race to Hybrids (2024)
-
IEA: Global EV Outlook 2024
-
Business Insider: Tesla Sales Slump (2025)
-
X Post:@mm_newsletter
(2025)