By 2025, Hybrids Could Be Priced Evenly With Non-Hybrids

If hybrid vehicles continue improving at their current pace, a new study said manufacturing costs will “be cut in half before 2025,” positioning hybrids to compete directly with non-hybrids for sales.

John German’s technical paper, published by The International Council on Clean Transportation, named advances through the learning process, increases in vehicle production and development of new technologies as some of the factors driving the lower hybrid manufacturing costs.

Even beyond these costs, German said hybrids as a class are also becoming more refined. Better fuel efficiency, larger vehicle size and the addition of comfort features are some of the ways these vehicles have improved in the past 15 years.

In his study, German often uses the Toyota Prius to illustrate these changes, a logical choice given the model’s long production history and sales domination in the hybrid market.

“If Toyota continues to achieve the same rate of improvement in succeeding Prius generations, or if newer types of hybrid systems that are in much earlier stages of engineering development can replicate that rate of improvement, full-function hybrid system costs will be cut in half before 2025,” said German.

“And that projection does not consider modest hybrid system size and cost reductions associated with future vehicle lightweighting; for example, 10 percent reductions in weight would reduce hybrid system cost by about 5 percent.”


“The purple line in figure 1 illustrates reductions in Prius hybrid system cost based upon changes in the motor propulsion system and the Prius list price versus the price of a comparably equipped Corolla, without considering efficiency improvements,” explained German in his technical paper.

Fuel savings are more than just an environmental perk for hybrid vehicles; the money saved at the gas pump also counterbalances the higher purchase price of a hybrid. With more than 40 models of hybrid vehicles on the market, German said quoting exact savings is difficult. But looking only at average savings of the hybrid class, the increased fuel efficiency is significant.

“Hybrid systems can reduce fuel consumption and CO2 emissions by up to 35 percent, equivalent to more than a 50 percent increase in fuel economy,” said German.

“Currently, roughly 29 percent of hybrid models (9 out of 31) pay back the initial hybrid price premium with fuel savings within 5 years. Roughly 61 percent of hybrid models (19 out of 31) pay back within the full useful life. On average, the fuel savings over the full useful life are about $1,300 more than the initial price premium,” he calculated.

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Though the fuel savings are evident, German noted that they are a major motivator for hybrid sales, as determined by the category’s low market share. He attributes sales trends to other improvements instead.

“The tenfold increase in hybrid sales from 2003 to 2013 suggests that many of the early concerns about hybrids, such as reliability, battery life, resale value, and safety, have been successfully addressed,” German said.


Hybrid sales have stalled in recent months, but overall, the 15-year trend shows a steady increase. German predicts that future sales will be strongly tied to auto manufacturer’s ability to continue cutting costs. The tipping point will come, he said, when the purchase price of a hybrid meets or beats the price of its gasoline-powered counterpart.

“Because most hybrid systems are at a relatively early stage of development, costs are still relatively high and manufacturers are looking to recover some of the costs by charging customers a premium for hybrid vehicles,” said German.

“Thus, currently the hybrid system needs to offer a major improvement in fuel economy to entice customers to pay the price premium. This favors full-function hybrids and works against mild hybrid systems. However, in the future, lower cost, mild hybrid systems will be able to compete directly against conventional technology improvements on a cost-benefit basis.

“Thus, hybrid market penetration will likely increase only modestly in the near term, but as costs drop hybrids will become just another technology that manufacturers sell on its positive efficiency and drivability impacts, not on the technology itself, similar to what is currently occurring with turbocharged gasoline engines.”