Volkswagen, General Motors to dump hybrids in favour of full electric vehicles

General Motors and Volkswagen are shifting the bulk of their future investment into fully electric cars.

A production line at German car maker Volkswagen's headquarters in Wolfsburg, in northern Germany. Picture: AFP

For two decades car makers have leaned on hybrid vehicles to help them comply with regulations on fuel consumption and give customers greener options in the showroom. Now, two of the world’s largest car manufacturers say they see no future for them in their US lineups.

General Motors and Volkswagen are shifting the bulk of their future investment into fully electric cars, seeing hybrids, which save fuel by combining a gasoline engine with an electric motor, as only a stopgap to ultimately meeting tougher tailpipe-emissions requirements, particularly in China and Europe.

GM plans to launch 20 fully electric vehicles world-wide in the next four years, including plug-in models in the US for the Chevy and Cadillac brands. Volkswagen also has committed billions to producing more battery-powered models, including introducing a small plug-in SUV in the US next year and an electric version of its minibus around 2022.

“If I had a dollar more to invest, would I spend it on a hybrid? Or would I spend it on the answer that we all know is going to happen, and get there faster and better than anybody else?,” GM president Mark Reuss said in an interview.

The different power options in vehicles

GM’s view contrasts with other car-making giants, including Toyota and Ford, which are working on full electrics but also expanding their US hybrid offerings. The diverging strategies show a division within the auto industry over what the right path to full electrification is as manufacturers pivot from the more than century-old model of building petrol-powered vehicles.

Last week, Continental, one of the world’s biggest car-parts makers, said it would cut investment in conventional engine parts because of a faster-than-expected fall in demand - yet another sign the industry is accelerating the shift to electric vehicles.

Toyota, Ford and other car companies have made hybrids a core part of their plans for both the US and overseas markets, seeing them as an interim solution for the majority of the car buyers that still drive gasoline vehicles and may not be ready for an all-electric ride.

Ford, for instance, plans to add hybrid versions of popular models like the F-150 pickup truck and Ford Explorer, in an effort to boost the fuel economy of its fleet in the near-term while continuing to develop fully electric models for the future.

“We can’t say to the customer ‘You have to take an all-electric vehicle, ‘” said David Filipe, Ford’s head of powertrain engineering. “We’re going to be aggressively chasing this space of hybrids.”

Losing money

Today, car companies generally lose money on each electric car they sell, mostly because of the high cost of lithium-ion batteries. Concerns about the battery range, along with a lack of places to plug in, also deter buyers from considering electric vehicles. Those factors make going straight to all-electric cars a risky strategy, analysts say.

While hybrid and all-electric vehicle sales have increased over time, the technology has failed to catch on more broadly.

Hybrids, which were popularised by Toyota’s Prius last decade as a social statement, accounted for about 3 per cent of US sales last year, according to research firm LMC Automotive. Sales of plug-in electric vehicles were around 1 per cent of the total market -mostly thanks to the success of Tesla models.

Still, pouring investment into both hybrids and electrics strains car-company finances, Morgan Stanley analyst Adam Jonas said. “It’s time to pick a path and commit to it,” he said.

VW and GM are focused on all-electric cars largely because of China, where new regulations require car companies to sell a minimum number of zero-emissions vehicles to avoid financial penalties.

VW plans to use its electric-car expansion in China to build scale and drive down prices faster in the US, said Scott Keogh, VW’s US chief.

“Our strong preference is to go all-in where the market is heading, as opposed to hybrids as a way to hedge our bets,” Mr Keogh said.

GM’s move away from hybrids follows years of false starts. About a decade ago, GM introduced hybrid versions of its big SUVs, including the Cadillac Escalade and Chevy Tahoe, but sales flopped and they were discontinued.

Later, the company found some success with the Chevy Volt, a plug-in hybrid that runs on electric power but also has a backup gas engine. The car was too expensive, though, and GM ended production this year. A plug-in hybrid version of the Cadillac CT6 big sedan introduced in the US a few years ago met the same fate.

Car companies are spending $US255 billion to develop more than 200 new plug-in vehicles through 2023, a figure that doesn’t include hybrids, consulting firm AlixPartners estimates. But predictions vary on how soon electrics will go mainstream.

For now, both hybrids and electric cars are more expensive to produce than comparable petrol-powered vehicles. A hybrid system can add roughly $US2,000 to a vehicle’s cost, while a fully electric version is an additional $US6,000 to $US10,000, said Alan Baum, an independent Detroit-area motor industry analyst.

Toyota also has long-term plans for fully electric cars, but for now, it seeks to build on the success of the Prius - one of the company’s more-recognisable nameplates - by expanding its hybrid lineup. That includes making hybrid versions of existing models, such as the Highlander SUV. The goal is to make hybrids 15 per cent of their total US sales.

Bob Carter, Toyota’s sales chief for North America, said that with US electric-vehicle sales expected to lag behind Europe and China, the company needs a nearer-term remedy. “That’s why we feel so confident in hybrids,” Mr Carter said.

The Wall Street Journal