Internal Combustion Engine Remains King in Certain Segments

In recent analysis of vehicle sales by segment, the differences between traditional internal combustion engine (ICE) vehicle sales and hybrid (HEV) sales show that hybrids are not competitive in several key segments within the U.S. The small car segment accounts for 20% of U.S. sales, but only accounts for 12% of HEV sales (with only 2 models available). While the midsize car segment with the popular Toyota Prius accounts for 68% of HEV sales (a total of 11 models available) compared to 31% for the segment among ICE vehicles. An indication that both manufacturer and consumer acceptance in this segment is strong.

There are several reasons that HEVs may not be capturing the same level of small car market share as the ICE small cars, though price and value are certainly one of the key issues. In this segment, many consumers are inclined to go for solutions that don’t break the bank, such as flex-fuel vehicles or high-efficiency or turbo ICEs. If product plans are representative of an automaker’s opinion, there appears to be some agreement with this strategy as high-efficiency ICEs with improved fuel economy with minimal cost increase seem to be the direction many are headed with new products (for example, the Chevy Cruze and Ford Fiesta).

This leads one to expect that the growth of plug-in vehicles in this segment will likely be niche vehicles, similar to how small luxury cars are niche vehicles within the small car segment.

Beyond cars, consumer demand continues to push the development of trucks, whether that’s crossover SUVs or full-size pickup trucks. Midsize/large SUVs and pick-up trucks combined account for about 27% of the U.S. new vehicle market, while sales of hybrids in these segments combine for about 3% (a total of 4 models, all GM). This mismatch between share of ICEs and HEVs is the result of several factors, cost of the vehicles, fuel economy gains that require many years of use to see payback, and lack of availability.

The prevailing assumption is that most consumers won’t pay for small improvements from HEVs in fuel economy in big truck segments, and that assumption is likely correct. The cost recovery for a $4,000 to $8,000 premium for the HEV version likely takes many years to pay back with fuel economy gains that net savings of $300 to $500/year (based on a 12K miles per year driving cycle and $3/gallon gas price). Even at double the gas price, paybacks on expensive HEVs system are at least 5 years or longer. Additionally, let’s not forget that truck buyers in the bigger vehicle segments are often looking for specific towing or cargo capabilities that HEVs have to live up to, which in some cases may drive the cost of the HEV even higher. The differences between HEV and ICE segment market share point to an opportunity within these segments for other less-costly technologies such as high-efficiency ICEs, start-stop hybrids or turbo-diesel engines.

Article by Dave Hurst, appearing courtesy Matter Network.