Hybrid and Electric Vehicle Market Research

There is an important distinction between hybrid vehicles and electric vehicles (EVs).

Hybrid vehicles, such as the Toyota Prius line, are powered by both an electric engine and an Internal Combustion Engine (ICE), which is the traditional engine fueled by petrol or Diesel. Electric Vehicles (EVs), by definition, are powered by an electric engine only. A large amount of battery cells deck the floor of an EV. The recharging of the battery is simply done by an electric plug, usually at the user’s home.

Opportunities and Challenges

Most automotive manufacturers have completed their model line-up with Hybrids. However, only a few propose exclusively electric cars. The leader in terms of sales for Current Year 2013 in the US EV segment is the Chevrolet Volt and the Nissan Leaf. Then comes the premium brand Tesla with its newly launched Model S. The volumes in the Hybrid segment are very different. The industry leader is considered Toyota, and its Prius line. The followers are Ford, with its Fusion Hybrid and C-Max Hybrid, and Hyundai Sonata.

The reasons behind the leadership in these segments are diverse and require a thorough industry analysis. However, one can easily assume that first-mover advantage plays a significant role in terms of branding, economies of scales and technology advantage. In fact, Toyota was the first to launch hybrid versions and is still on top of that market. In the same way, Nissan and Chevrolet were pioneers in mass market EV in 2009/10 and still hold a leadership position.

With the level of competition and the broad set of differentiation attempts by auto manufacturers, sales volumes, and more precisely market and segment shares, are key measures of success in this industry.

Electric Car Regulation

Regulation on C02 emission and gas consumption is a main reason that pushes manufacturers to develop and market low or zero emission vehicles. In a global industry, an increasing number of countries have adopted tax incentive schemes that favor the sales of hybrid and EV over traditional more fuel consuming cars. For instance, France has Bonus/Malus scheme, where a cash amount is offered to the buyers of hybrid and EV vehicles. The same applies to Holland.

The US has recently adopted similar auto tax schemes but the regulatory environment is less stringent. This market dynamic along with a possible “Halo effect” around the brand push all manufacturer to propose hybrid or EV models. Therefore, a larger question becomes what model line-up strategies do manufacturers want to adopt.

Customer Insights

Customers of hybrids and EVs are for most part environmentally conscious above 50 year old upper income class individuals. Thus, while it makes sense to offer a hybrid or EV family sedan or compact car for urban environment, this product strategy does not find rational for full size heavy duty trucks. Likewise, Ford offers hybrid and EV for the Fusion and the Focus respectively but remains on ICE for its flagship F-150.

EVs and Hybrids are priced at a premium over similar ICE models with same equipment level. Manufacturers have performed extensive price vs. value analyses in order to find out what would be the premium that the customers are willing to pay to drive a low emission car.

The impact on the industry overall is not clear because the volumes are still rather small for EVs and Hybrid. At the segment level, however, EVs and Hybrid pricing strategies can be seen as a differentiation strategy over the non-premium ICE segments.  In other words, a non-premium brand such as Nissan or Toyota is potentially able to price their hybrid and electric cars at the same price level as a Mini, a BMW or an Audi. With the scale that Nissan and Toyota have accumulated over the years, the marginal cost to produce a Hybrid or an EV has greatly diminished, leading to superior marginal return for their Hybrid and electric businesses.