The automotive industry is undergoing a seismic shift towards electrification, with fully electric vehicles (EVs) poised to overtake hybrid models in the long run. According to a recent report from The Economist, the current surge in hybrid car popularity may be short-lived as battery technology advances, costs decrease, and regulatory pressures intensify.

The Temporary Rise of Hybrids

Plug-in hybrid electric vehicles (PHEVs) have seen a significant boost in sales, up by almost 50% year-on-year in the first seven months of 2024. This impressive growth outpaced battery electric vehicles (BEVs), which saw a more modest 8% increase. However, industry analysts predict this trend won’t last, viewing it as a transitional phase in the broader shift towards full electrification.

Several major carmakers have been warming to hybrids recently. Volvo, for instance, backtracked on its commitment to go all-electric by 2030, now saying BEVs and PHEVs will together account for 90% of its sales by decade’s end. Ford made headlines by scrapping plans for a large fully-electric SUV, opting instead for hybrid power. Hyundai is doubling its range of hybrids from seven to 14 models, while Volkswagen has pledged to increase investments in hybrids as it rethinks its BEV strategy.

The Cost Factor Driving Hybrid Adoption

One of the main drivers behind hybrid popularity is cost. Jim Farley, Ford’s CEO, points out a crucial market reality: most buyers “will not pay a premium” for fully electric vehicles. PHEVs, with their smaller batteries, are only slightly pricier than traditional petrol cars and cheaper to run. They typically have a 20-kilowatt-hour battery unit, around a third of the size of those in BEVs.

Electric Vehicles In The Eu: A Market On The Rise — Electric Vehicles in the EU: A Market on the Rise

This cost advantage makes PHEVs an attractive option for consumers looking to dip their toes into electrification without the higher upfront costs associated with full EVs. Additionally, hybrids offer a solution to range anxiety, as they can typically travel around 40 miles on their batteries before switching to petrol power.

Regulatory Pressures Shaping the Future

Despite their current appeal, hybrids face an uncertain future due to tightening regulations aimed at accelerating the transition to zero-emission vehicles. California and 16 other U.S. states have implemented rules stipulating that by 2035, only 20% of new vehicles sold can be plug-in hybrids, with the remainder required to be fully electric.

The European Union is taking an even stricter stance, planning to ban the sale of all cars with petrol engines, including hybrids, by 2035. These regulatory pressures are forcing automakers to reconsider their long-term strategies and invest more heavily in fully electric vehicle development, according to the Economist.

The Growing BEV Advantage

As battery prices continue to fall and production scales up, BEVs are becoming increasingly competitive. Renault and other carmakers are planning to roll out more affordable BEV models, spurred on by fierce Chinese competition. This trend is expected to accelerate as battery technology improves and economies of scale kick in.

Patrick Hummel of UBS, a financial services firm, succinctly captures the industry’s trajectory: “Hybrids are winning now, but BEVs will win eventually.” This prediction is supported by forecasts showing BEV sales overtaking those of hybrids in the long term.

Carmakers’ Profitability Concerns

Interestingly, carmakers currently favor hybrids because they are typically as profitable as petrol-powered cars, unlike most BEVs which are currently loss-making. Hybrids allow legacy automakers to leverage their existing expertise and supply chains, providing a smoother transition as they build up their electric vehicle capabilities.

However, as battery costs decrease and BEV production becomes more efficient, this profitability gap is expected to narrow and eventually reverse, further driving the shift towards full electrification.

EVXL’s Take

The transition from hybrids to full EVs mirrors the broader shift we’re seeing in the automotive industry. As battery technology improves and costs decrease, the advantages of fully electric vehicles become more pronounced. This trend aligns with what we’ve observed in the Volkswagen lineup, where the ID series of all-electric vehicles is gaining traction, and in General Motors’ ambitious plans to phase out internal combustion engines entirely.

The move towards full electrification isn’t just about meeting regulatory requirements—it’s about embracing a more sustainable and efficient future of transportation. While hybrids serve as an important stepping stone, allowing consumers and manufacturers to adapt to electrification, the long-term future appears to belong to fully electric vehicles.

As the industry evolves, we’ll likely see continued innovation in battery technology, charging infrastructure, and vehicle design, all aimed at making EVs more accessible, affordable, and appealing to a broader range of consumers.

What’s your perspective on the future of hybrids vs. full EVs? Do you think the transition will happen as quickly as some predict? Share your thoughts in the comments below.