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The Hybrid Anomaly

Horace Dediu, 9/27

A hybrid car sounds like a good idea. It uses an electric motor to assist a regular internal combustion engine especially at those times when combustion is least efficient. During initial acceleration and at idle, gas engines are very inefficient and as a result only about 20% of the energy they consume is turned into useful work on average.

A hybrid Toyota Prius engine converts about 40% of the energy is uses into useful work. As a result, the gas mileage for a hybrid car can be around 30% higher than the equivalent gas-only car[1]. Even better, for a given displacement, using a hybrid car is not different than using a conventional car. The customer is not expected to change their behavior.

Given these obvious improvements, and the support of industry regulators, hybrid cars were a huge success story when introduced. In the first year of US sales, 9,350 hybrid cars were sold. The following year the total more than doubled to 20,000 units. Growth continued rapidly, quadrupling by 2004 and increasing ten-fold by 2005. In an mere six years the hybrid went from zero to taking over 1% of the US car market by volume. The sales graph looked like a classic “hockey stick” with exponential growth.

The implementation of the technology in a product and timing of its entry was fortuitous. When it launched, the green credentials of the Toyota Prius made it a darling with celebrities and its affordable price made it attractive to middle class families. The distinctive design and unassuming shape was a stark contrast to the flashy SUVs that had recently become ubiquitous. Like the original Volkswagen Beetle, Toyota had a huge countercultural hit on its hands. The car that delivered 50 miles-per-gallon seemed to please everybody. Even government cheered and showered it with credits, subsidies, HOV access and lower fees.

The Prius helped make Toyota the top carmaker in 2012[2]. With gas prices steadily rising, low consumption without compromised convenience or performance, a chic green image, and an expanding portfolio[3], To any reasonable observer it looked like hybrid powertrains were the future of cars. Analysts began making bold predictions of a future where as many as 80% of the cars sold would be hybrids by 2015. These forecasts are shown In 2008 hybrid sales began to fall along with the rest of the industry but, ominously, the hybrid share of all cars sold stopped growing. As a percent of total sales hybrid cars reached 2.8% in 2009, fell to 2.1% by 2011 and by 2012 they recovered to 3% and peaked at 3.2% in 2013. A marginal increase above the level of 2009.

Then the unthinkable happened. Sales of hybrids fell in 2014 and 2015 even though the overall car market recovered and reached new records.

In 2015 7.4 million vehicles were sold in the United States. Of these 384k or 2.2% were powered with a hybrid powertrain. This sales share was not much higher than the level seven years earlier. Graph 2 shows the total electric drive market from 2000 to 2015 compared with the forecasts. Rather than growing to 3 million vehicles a year, the actual figure is barely 10% of the forecast.

During this time, the performance of the power plant increased steadily. Table 1 shows the performance characteristics and distribution.

Why would a product that offered better economy, more efficiency, broad product/configuration availability and ecological benefits without change of behavior or extra expense fail to live up to a growth curve that reasonable analysts could forecast? Consider that regulators world-wide mandated fleet mileage higher and emissions lower every year. The carrot of economy is matched by a stick of compliance for manufacturers.

More profoundly, why would an obviously good idea fail to catch on? The hybrid car is not the only good idea that failed to catch on. We observe similar behavior in the absence of acceleration behind energy behavior, nutrition and health, education, management and governance. In contrast we also see very rapid adoptions for ideas of marginal utility. Automotive conveniences such as air conditioning, central locking, power brakes and safety measures were rapidly adopted. New modes of communication, entertainment and finance become ubiquitous with increasing rapidity.

If we measure utility alone as a predictor of speed of adoption, we are bound to be disappointed. But what are the alternatives? What other than desirability could calibrate our sense of urgency?

[1] Electric engines reach 85% to 90% efficiency.

[2] http://www.oica.net/wp-content/uploads/2013/03/ranking-2012.pdf

[3] Over 35 different Toyota models are offered with hybrid drive options.