Electric perfection is enemy of hybrid-car good

A Toyota Prius Prime is seen during the media preview of the 2016 New York International Auto Show in Manhattan, New York March 23, 2016. REUTERS/Brendan McDermid

HONG KONG, Aug 16 (Reuters Breakingviews) - There’s a place for the hybrid electric car. Activists are attacking companies like Toyota (7203.T) for not ditching them fast enough in favour of purely battery-powered cars, while politicians prepare to wind down subsidies for or outright ban motors that mix electricity and gasoline. Purging the internal combustion engine (ICE) is the ultimate goal, but that’s a long way off. Forcing the pace of change could leave middle-class consumers and poor countries behind and even spark a grassroots backlash against clean cars in general.

Plenty of major car brands still like hybrids; China’s Li Auto (2015.HK) makes nothing else. There were over 5 million of them on the world’s roads in 2021, per International Energy Agency estimates, or 30% of the electric-vehicle (EV) total. Toyota argues that policies banning ICE and hybrid cars are coming too quickly. It even threatened in July to close its UK factories if the government there follows through on its threat to ban the technology by 2030.

That sort of attitude has made the world’s biggest carmaker by vehicles sold unpopular among shareholders and environmentalists alike. New York City’s pension fund was one of several investors to berate the $270 billion Japanese vehicle manufacturer at its June annual meeting for its slow shift to electric vehicles. Greenpeace ranks it worst of the automakers for decarbonisation efforts. Yet it still has the lowest fleet emissions of any major carmaker excluding Tesla (TSLA.O). That’s thanks in no small part to the company’s hybrid collection, led by the Prius series. Launched in 1997, the first mass-produced hybrid vehicle was a hit with eco-conscious consumers; even now it is among the most fuel-efficient mid-priced cars on the road. The 2022 Prius Eco gets 56 miles per American gallon, twice the global average.

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Hybrids are generally cheaper to manufacture and buy than pure electric models, and getting more so now that battery costs have spiked. In the crucial mass-market segment, they sport better earnings margins. The technology has improved and diversified. Some designs, like the BMW i3 and China’s Li L9, rely more on electricity with a small ICE to extend range. Others are more dependent on petrol and have correspondingly worse greenhouse emissions.

Vehicles powered wholly by electric battery, though, are more efficient at converting energy, in addition to having no tailpipe emissions: they use at least 77% of the power provided by the battery to move, whereas some hybrids waste up to 79% through heat and friction. Combine that with a largely fossil fuel-free electricity grid in a small, wealthy country, and 100% electric vehicles make complete sense. They can now account for more than 80% of monthly new car sales in Norway, where hydropower provides virtually all power; hybrid sales have dropped to a single-digit percentage.

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The further away you get from the Norwegian nirvana, though, the more hybrids can continue to play a role.

In the United States, pure EVs almost always emit less greenhouse gas than ICE models, even when accounting for the emissions generated by building them. A study by the Union of Concerned Scientists showed that the average electric vehicle generates emissions equivalent to a hypothetical gasoline model that gets 91 mpg. However, wide regional variations are notable. In Hawaii, the average electric car gets only 52 mpg because the grid itself runs mostly on petroleum. Other areas are worse. The most efficient battery-powered electric vehicle (BEV) on the market will get only 55 mpg in the midwestern region around Wisconsin – worse than a Prius.

This highlights an issue for other countries with dirtier power mixes. Coal produces roughly 35% more carbon dioxide than gasoline and is the largest global source of CO2 emissions. While it only provides around a fifth of U.S. electricity, it makes up a far larger slice of the pie in the massive Asian economies which now contribute the bulk of new emissions growth. India, the world’s third-largest emitter, runs over half its grid on it. China, the world’s biggest automobile market, relies on coal for nearly two thirds of its electricity, as does Australia; the figure is above 80% in countries like Poland and the Chinese province of Inner Mongolia. In such locations, the relative emissions advantage of BEVs over hybrids shrinks.

In addition, surveys show that range anxiety — the fear that EVs will run out of power and strand drivers — is a real issue for consumers. Assuaging that takes time and lots of money. The United States, for example, aspires to have half of new cars sold in the country by 2030 be zero-emissions. To ensure that drivers can charge when and where they need without waiting in long lines, the government will have to spend $35 billion on 1.2 million public charging points, McKinsey estimates, expanding the total current inventory by more than 20 times.

It is also human to resist changing habits. Throughout history, environmental activists and technology entrepreneurs alike have underestimated how stubborn the masses can be when it comes to making small changes in behavior. If people can’t be bothered to bring reusable coffee mugs to the local café for a discount, is it any surprise some won’t wait half an hour for their car to charge?

And there’s the wealth gap. Pure electric models are more expensive on average, and investors have concentrated on luxury brands like Tesla and China’s Nio . Charging installations around the world are concentrated in high-income areas, the McKinsey survey found, and electricity from those stations could cost five to 10 times more than home outlets. If the clean car movement becomes associated with expensive vehicles, long waits and higher tax bills, it will reduce consumer demand for EVs, corporate interest in making them, and popular support for the public investment needed.

Finally, it bears remembering the scope of the problem. Nine of every 10 cars sold are still gas guzzlers, and global emissions continue to rise. Even if the U.S. EV target for 2030 is hit, for example, 85% of vehicles on its roads will still be powered by the internal combustion engine. If cheaper and increasingly more efficient hybrids cannibalise demand for traditional models, however, they will incrementally reduce global fleet emissions - even if they do burn a bit of petrol. When it comes to cars, investors should tolerate different shades of green.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

CONTEXT NEWS

Activist investors including Denmark’s AkademikerPension, the Church of England and the New York City government attacked Toyota in June for continuing to develop hybrid-electric models instead of shifting entirely to battery-powered designs.

In 2021 Toyota committed 8 trillion yen ($59 billion) to electrify its cars by 2030, with half of that slated to develop battery-only electric vehicles. It expects annual sales of such cars to reach 3.5 million units by the end of the decade, roughly one third of current total sales.

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Editing by Antony Currie and Thomas Shum

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Asia Economics Editor Pete Sweeney joined Reuters Breakingviews in Hong Kong in September 2016. Previously he served as Reuters' chief correspondent for China Economy and Markets, running teams in Shanghai and Beijing; before that he was editor of China Economic Review, a monthly magazine focused on providing news and analysis on the mainland economy. Sweeney came to China as a Fulbright scholar in 2008, and in that role conducted research on the Chinese aviation industry and outbound M&A. In prior incarnations he helped resettle refugees in Atlanta, covered the European Union out of Brussels, and took a poorly timed swing at craft-beer entrepreneurship in Quito even as the Ecuadorean currency collapsed (not his fault). He speaks Mandarin Chinese, at the expense of his Spanish.