In the wake of a year that saw record electric vehicle adoption achieved alongside weakening consumer demand, a new report from S&P Global Mobility found a transition trend that could indicate more challenges ahead for the sector.
After analyzing return-to-market vehicle registration data, S&P found households with gas-powered cars to be more likely to transition to a hybrid or plug-in hybrid than to a fully electric vehicle.
Without Tesla (TSLA) , the gas-to-electric migration is even thinner.
The report found that 8.3% of internal combustion engine (ICE) households that purchased a new vehicle between January and October of 2023 purchased a hybrid; this trend, according to S&P steadily increased throughout the year, reaching 9.9% in October.
Comparatively, 5.7% of ICE households that purchased a new vehicle in October purchased an all-electric car.
Though this trend has also been steadily increasing, it is doing so at a slower rate than the hybrid migration trend.
In October of 2021, 6.5% of ICE households migrated to hybrids, a number that fell to 6.1% in October of 2022 before jumping to nearly 10% in October of 2023.
In October of 2021, 3.3% of ICE households migrated to fully electric EVS, a number that rose to 4.6% by October of 2022 and 5.7% by October of 2023.
“The automotive industry’s transformation to fully electric may not be as rapid as EV advocates are hoping, as US consumers increasingly opt for more sustainable and energy-efficient vehicles,” Tom Libby, associate director for loyalty solutions and industry analysis for S&P Global Mobility, said in a statement. “This consumer trend of taking a half-step by choosing a hybrid instead of moving directly to an EV may be a sign of tentativeness to fully embrace electricity as the means of propulsion.”
The reason for the difference in trends, according to S&P, is multi-fold. Hybrids, the report said, offer a bridge between electric and gas, while assuaging fears of lacking charging infrastructure and range anxiety.
The Pricing Power of Hybrids
Hybrids also tend to run cheaper than their fully electric counterparts, providing for an easier transition.
Data from AutoCreditInisight by S&P and Transunion found the average monthly payment between January and October of 2023 to be $675 for owners of gas-powered vehicles, a number that fell to $670 for owners of hybrids.
That number rose to $798 for owners of plug-in hybrids and jumped to $828 for owners of fully electric EVs.
The Tesla Model Y was the most popular acquired model among ICE households that have migrated to EVs. More than 110,000 ICE households purchased a Tesla Model Y during the given time period last year.
Tesla sold 1.81 million EVs in 2023, an increase over the 1.37 million units it sold in 2022.
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This comes as legacy automakers, including Ford (F) and General Motors (GM) , have pulled back and postponed some of their EV investments, citing issues with demand and profitability.
Toyota (TM) has touted the value of pushing hybrids in an environment where the consumer doesn’t seem fully ready to make the complete transition to total electrification.
S&P said that, because of this approach, Toyota is likely to see increased demand over the next few years.
“While the shift toward EVs seems inevitable, the path to full electrification may not be straightforward,” S&P said in the report. “The rising trend of gas households migrating to hybrid models suggests that the automotive industry needs to cater to a range of consumer preferences and concerns.”
Global sales of EVs, which include hybrids and fully electric EVs, topped 13.5 million units in 2023, a new record that indicated 31% year-over-year growth.
