The Road To Electrification
The automotive industry has not been the same since Tesla demonstrated that electric cars can be cool and high-performance with the launch of the Roadster in 2008. For a while, it seemed that the only direction the industry would take was a turn toward EVs, with the only question being how fast it would happen.
Some expected it to take the industry by storm; others were more skeptical that EVs could perform well enough to go beyond the first adopters, at least until radical improvement in battery tech. What few anticipated is that hybrid engines, another technology using both fuel and electric power would make a comeback.
So why is it happening, and how can investors capitalize on this new trend?
ICE vs. EV Technical Comparison
ICE (Internal Combustion Engine) has been the center of vehicle motors for a century. It became the dominant technology for a few reasons:
- Cheap and abundant oil thanks to new reserves discovered and new technology to keep finding more oil.
- The extreme energy density of liquid fossil fuels.
- A well-established supply chain and fully developed technology.
The problem with ICE vehicles is that they are major emitters of carbon, an issue that the public and authorities have become concerned with as global warming continues.
In addition, the easiest-to-tap oil deposits (like Saudi Arabia) are now depleting, and more expensive sources, like shale oil or arctic oil deposits, have to be found.
Still, from day one, EVs should have, in theory, become the dominant way of moving cars and trucks due to a few fundamental elements making electric motors superior:
- No combustion means no burned residues and, therefore, needs for oil filters, catalytic converters, etc.
- Almost no moving parts (compared to the complex piston of ICEs), greatly reducing maintenance and failure rate.
- It is possible to be powered by multiple energy sources as long as they are converted into electricity. Something demonstrated in the recently announced Scout EV with its onboard generator.
- Much higher conversion rate of energy to movement (70-90%, instead of just 20% for ICE, with the rest being waste heat).
- Braking can regenerate part of the energy otherwise lost.
However, the issue was that energy storage was both too heavy and displayed low energy density. This meant that early electric cars would need to constantly recharge, and were losing efficiency carrying cumbersome chemical batteries.
This changed with lithium-ion batteries, which finally deliver enough performance for long-range electric cars.
While more energy-dense, lithium-ion batteries still have a few problems. First, they are still heavy, making the average EV weigh 300-400kg more than an ICE car.
And more importantly, they are expensive, making up 40% of an EV’s price. So, while this is not a problem for luxury cars, it is for the mass market.
A Balanced Solution
This is where hybrid engines come in as a balanced solution, especially plug-in hybrids. They combine both an internal combustion engine and a set of battery + electric motors.
Source: US Department of Energy
Because the car has access to liquid fuel, the range is not a concern for long trips. But because it has an electric engine, most of the daily commutes and small travels making up the bulk of a car mileage can be done on more efficient electric motors.
It also gives access to regenerative breaking (reloading the battery when braking), a big efficiency booster in urban drives.
So while this does not entirely remove the usage of fossil fuels, hybrids can drastically cut oil consumption.
Hybrid vehicles are categorized depending on how the electric systems are used:
- Plug-in Hybrid Electric Vehicle (PHEV): the car has a loading port like an EV, on top of a fuel tank and ICE engine. So it can be used both as an EV and an ICE engine depending on preference.
- This is becoming the most common form of hybrid, due to its versatility.
- Hybrid Electric Vehicles (HEVs): there is an electric motor, but no plug to charge the battery directly. The battery is instead charged by the activity of the ICE engine and regenerative braking.
- Range Extender: while PHEVs have small batteries and a big ICE engine, some EVs are the opposite, with a small gas engine to increase the range of the vehicle.
For a while, hybrids were viewed as mostly a transition technology, something of a relic of the paste from before EVs’ batteries were enough to popularize full BEV (Battery Electric Vehicles). But this does not seem to be the case after all.
Buyers And Markets Warming Up To Hybrids
By 2023, worldwide sales of hybrid models had risen from 3.9 million to 4.2 million.
In 2024, hybrid sales have quite literally exploded. For example, Ford’s hybrid vehicle sales rose 55%, leading it to plan to double production of the hybrid variant of its popular F-150 pickup truck.
And this is a global phenomenon:
- In France, hybrid vehicles accounted for 36.7% of registrations in the first two months of 2024.
- In Estonia, it was 53% of total sales.
- More than half of China’s car sales were plug-in hybrids, up 51% year-to-year.
There are a few factors driving this resurgence in hybrid vehicles.
Hybrid Advantages
Price Advantage
Despite having significantly reduced in price, EVs are still more expensive overall than ICE cars. EV enthusiasts will correctly point out that EVs have lower maintenance costs, making the comparison of the price tag for new cars somewhat unfair.
However, the lower range of ICE cars, such as low-cost brands like Renault’s Dacia, are much cheaper than most EVs in Western countries.
Hybrids can offer a good compromise, as they usually have a battery enough for a range of only 50-60 miles. This means that the cost associated with a PHEV’s battery is much lower, 6-8x cheaper when compared to an EV with an equivalent range to the hybrid with its ICE engine.
Source: Statista
Lower Maintenance Than ICE
While not as low as EVs, the hybrid also has an advantage in maintenance costs versus ICE vehicles. This is because as a lot of the mobility is actually delivered by the electric motors, the combustion engine is used a lot less often and less intensively. This means less movement of the piston, less gas burned, less oil needed, etc.
This lower usage of the ICE overall reduces the wear and tear of the mechanical parts, as well as the maintenance required.
Solving Anxiety About EVs
Many users of ICE cars are somewhat skeptical of jumping the boat straight to EVs. This can be done for a range of reasons, some perfectly rational, some more akin to psychological barriers:
- EV charging stations: This is especially sensitive for people living in apartments, not having access to a dedicated parking spot, and/or a charging facility at home.
- For some people, it is the availability of EV stations that is an issue, either due to too few stations on their way or too many cars trying to charge at the same time.
- For others, it is the issue of the time required to recharge their EVs, especially if they own one in the lower price range, with smaller batteries that charge slower.
- Cold climate EVs’ challenges: It is well known that EVs’ batteries are especially under pressure in cold spells. This is a concern for people living in cold climates, especially in remote areas.
- The drop in temperature reduces the battery charge as well as forces the EVs to use some of the power to keep the battery temperature constant.
- The “waste heat” from ICE in summer is rarely wasted at freezing temperatures and instead used to keep the passenger warm. An EV will instead drain the battery to run the heating system.
- Range Anxiety: Even if this is less and less factual with technological advancement, many drivers are still worried that EVs have too limited range to not risk being stranded without a way to refuel mid-way.
- It should be noted that this concern can be very valid in countries with poor charging station infrastructures, likely a durable issue in South & South-East Asia as well as Africa and South America.
- Fuel supply reliability: a more marginal concern, but that might still tip the balance for some users to keep an ICE or hybrid engine. In case of supply disruption, as illustrated by the recent hurricane damages in the USA, ICE engines can be more reliable vehicles if the power grid is down.
- It should be noted that here, plug-in hybrids are by far the most resilient option. Either powered by off-grid solar or fuel, it can switch to whatever is available in case of a crisis.
Hybrid Benefiting From EVs’ Batteries
It is somewhat ironic that a large reason for hybrids’ resurgence against EVs is EV technology itself.
As EVs became a mass market, this led to a massive boom in the volume of batteries produced, as well as important improvements in the design of cars’ electric motors.
The same happened with the construction of widespread charging station networks, people buying their own charging systems at home, etc.
This made the plug-in hybrid a lot more viable as an option than before:
- Better battery technology increased hybrid electric range and capacity.
- More battery production decreased their costs significantly.
- Charging networks can be used by hybrid too, and with much less time required to get a full charge.
- EV popularity made many question the dominance of ICE technology.
It is however unlikely that hybrids will fully takeover the market in any case, as most of their advantage is built upon the existence of the EV infrastructure and manufacturing ecosystem.
Investing In Hybrid Technology
One way to invest in the growing popularity of hybrid vehicles is to invest in the production of platinum, as every additional million hybrid cars sold creates a demand for roughly 150,000 ounces of PGMs. We discussed this topic in detail in “Investing In Platinum – The Universal Catalyst”.
Another way is to invest in companies with a focus on hybrid technology (see below). You can invest in hybrid car automakers’ stock through many brokers, and you can find here, on securities.io, our recommendations for the best brokers in the USA, Canada, Australia, the UK, as well as many other countries.
Hybrid Vehicle Company
Toyota Motor Corporation (TM +1.88%)
For a very long time, Toyota, the world’s largest automaker, was heavily criticized for refusing to embrace the EV revolution. Instead, it preferred to focus on hybrid and hydrogen technology as alternatives to ICE models. We discussed in further detail the history and reasons for that decision in an article dedicated to the company: “Toyota (TM) Spotlight: Playing it Safe with a Well-Rounded Approach”.
Of course, the recent turn of events in the auto markets has now vindicated Toyota’s strategy. Today, “electrified vehicles” make up 43.2% of Toyota and Lexus sales, with the vast majority being HEVs (Hybrid Electric Vehicles).
“I owe Toyota an apology. I was convinced its limited commitment to electric cars was on the wrong track.”
Adam Jonas – Automotive market analyst at Morgan Stanley
Toyota is also refreshing its looks, with the often criticized Prius design given a new sports car look, even to the point of being accused of having copied the Ferrari Purosangue.
Source: r/Ferrari
This does not mean that Toyota is completely ignoring EVs. In its September 2023, the company’s battery technology roadmap included a few key future milestones:
- The next-generation BEVs (Battery Electric Vehicles) are to hit the market in 2026.
- The expectation is for 5m BEVs to be sold by 2030, of which 1.7m will be this next generation of BEVs.
- It is worth noticing that this 1.7 million units, while below 20% of current sales, would be as large as all of Tesla’s current sales.
Source: Elektrec
An interesting technology Toyota is preparing is solid-state batteries. It could boost the company’s EV performances, as well as give some hybrid models a very high electric range.
However, investors should also be aware that solid-state has been touted as “around the corner” since 2017, so some skepticism is required.
Toyota’s Future
One market where Toyota has been struggling is China. This is not really unique to Toyota and is more a reflection of how all foreign manufacturers are experiencing difficulties in China.
This is mostly from competition with very solid domestic brands, a price war in this market, and a much deeper penetration of EVs in the Chinese market than anywhere else.
Overall, we can expect Toyota to greatly benefit from the global turn to hybrids.
At the same time, it will have to fight for market share with Chinese companies like BYD expanding quickly, with both hybrid and EV models.
Still, compared to most “legacy” automakers, Toyota’s large production volume, and its experience with hybrid and advanced manufacturing methods, should put it in a better position than most of its competitors to resist the rise of Chinese car automakers at home and in export markets.
