Toyota Prius sales jumped 52 percent in February, as gas prices spiked and consumer interest in fuel efficiency soared. With some analysts predicting that gas prices will climb at least another $0.50 before summer, the stage appears to be set for a strong comeback of the Prius. Edmunds.com predicted that this would be the year the Prius regains center stage among advanced-drive vehicles, after two years of plagues ranging from alleged safety issues, to supply shortages, to electric car hype. The Prius recovery is off to a strong start but some obstacles could still make for a bumpy road ahead.
Prius Versus Electric: Round One Goes To Prius
Prius sales spiked to 20,589 in February for its two available models — the traditional Prius hatchback and the larger Prius V. By any measure, these were strong results: 78 percent growth over January 2012, 52 percent growth over February 2011, and the fourth highest Prius month ever. At the same time, Prius market share rose 42 percent, from 1.3 percent to 1.8 percent, accounting for the majority of the increase in overall advanced-drive (including hybrids, electrics and plug-in hybrids) market share. Advanced-drive market share climbed from 2.5 percent in January to 3.2 percent in February — making February the fifth month ever that that share exceeded 3 percent.
In contrast, electric-drive vehicles alone — including electrics and plug-in hybrids (EVs/PHEVs) — lost market share, falling from a recent high of 0.21 percent in December to 0.14 percent in January and then to 0.13 percent in February. Nissan Leaf sales accounted for much of the recent decline, but share for the Chevrolet Volt and the Mitsubishi i-MiEV remained flat, despite larger sales volumes for both.
Possible Rocky Road Ahead
While these results appear to depict a resounding success for the Prius over the electric-drive car, the year is still young and the road ahead is not entirely clear for the Prius. On the one hand, high gas prices typically increase hybrid sales. While the Prius suffered from supply shortages during several past gas price episodes that limited its sales, Prius inventories appear robust for now. Despite February sales strength, the average Prius required 41 days on the dealer lot before selling ("Days-to-Turn," or DTT) in February, the highest since March 2011, and well above the average for the past five years. During previous periods of high demand, Prius DTT fell below ten days.
On the other hand, several obstacles could slow sales. In the past, consumer attraction to smaller, more fuel efficient vehicles — including hybrids — tended to wane once gas prices stabilized or began to decline. Even if consumer interest in fuel efficient vehicles remains strong for the rest of the year, the Prius faces strong competition from a growing roster of increasingly fuel efficient gas-powered vehicles. And while the Prius remains one of the less expensive advanced-drive vehicles, it is still about 30 percent more expensive than its most similar gas-powered competitor. A Prius owner would have to hold on to his vehicle for eight years in order to recoup this price difference through fuel cost savings at current gas prices. But according to a recent Edmunds.com analysis, consumers tend to own their vehicles for just six years, on average.
Recent Prius sales may also overstate actual demand, due to a likely boost from consumers who had deferred purchases last summer when the Prius suffered a supply shortage following the Japanese earthquake. From May to August, the Prius averaged 5,600 fewer sales per month, on average year over year, cumulating in more than 20,000 "lost" sales. While some buyers undoubtedly bought other new or used vehicles, loyalty to the Toyota brand as well as the persistent popularity of the Prius and the lure of the all-new 2012 Prius models suggest that other consumers have waited until Prius supply recovered. The key question, of course, is how many consumers waited, and how many of those have already returned to market and bought a Prius during the past few months. If recent Prius sales have been boosted substantially by these consumers, sales could slow as the pool of deferred sales shrinks.
Round Two: Prius Plug-In Versus Other Electrics
The Prius battle versus electric-drive vehicles will further heat up later this spring when the new Prius Plug-In hits the market, going head-to-head against the existing competitors in the EV/PHEV space. Based on consumer shopping patterns on Edmunds.com, even before its market debut, the Prius Plug-In has attracted interest from consumers shopping for a wide range of vehicles, including the Leaf and the Volt as well as the Prius siblings and other hybrids and various gas-powered vehicles.
But, even if the Prius Plug-In outperforms the other electric-drive vehicles, there is also a risk that Toyota discovers the same limited demand for its plug-in that GM has experienced with the Chevy Volt. GM sales fell short of initial projections of 10,000 in 2011 by several thousand units. Limited geographic availability and production issues raised the possibility that inadequate supply could explain the Volt's shortfall. But despite projections of 45,000 sales in 2012, GM already has had to halt production in order to moderate inventory growth — only about half of the 2,347 Volts produced in February actually sold. Given the increased interest in fuel economy due to rising gas prices in February, the Volt's relatively weak performance suggests that demand for the vehicle simply is not that strong. Most likely, the Volt's hefty price tag (2012 MSRP $39,145) is at fault. The price premium on the Volt just doesn't make economic sense for the average consumer when there are so many fuel-efficient gasoline-powered cars available, typically for thousands of dollars less.
Which brings us back to the Prius Plug-In: while cheaper than the Volt and some other potential competitors, it still sports a price tag (2012 MSRP $32,000) that is thousands of dollars higher than many other potential competitors. Toyota will need to carefully manage public expectations to make sure it doesn't fall into the same trap as GM.
Lacey Plache is the Chief Economist for Edmunds.com. Follow @AutoEconomist on Twitter.