Will Higher Gas Prices Boost Hybrid, EV Sales?

Will higher gas prices lift sales of hybrids and electric vehicles? Typically, when gas prices soar abruptly, sales of fuel-sipping small cars, hybrids and the like edge higher. That was the case during the gas spike of 2008 when prices peaked at a national average of $4.11 a gallon. Indeed, gasoline prices already are setting new records for this year at an average of $3.72 for a gallon of regular unleaded, according the numbers released Tuesday from AAA, and they are rising daily. The motorists club noted prices have surpassed $4 a gallon in California, Alaska, Hawaii and some parts of New York. Some experts predict prices could reach $4.25 a gallon nationally by late April and could even hit $5 a gallon in some cities, including Los Angeles and Chicago.

Generally speaking, hybrids, EVs and even diesels don't save consumers money compared with traditional gas-powered vehicles. The premium charged for hybrids and EVs takes time for consumers to recover in fuel savings — often a long time, maybe even longer than they intend to own the car. That payback period was compounded by the fact that tax credits on some of these fuel-sippers ended.

But with rising gas prices, the economics of buying hybrids and EVs improve by shortening the premium payback time, according to an Edmunds.com analysis. How much payback periods are shortened varies wildly from model to model, however. Edmunds.com's analysis assumes an average of 15,000 miles driven a year — the payback is quicker if more miles are driven — and uses Edmunds.com's True Market Value (TMV), the price consumers can expect to pay based on what other buyers paid, as well as Edmunds' estimated monthly fuel costs for every vehicle. It should be noted that the payback period only shortens if gas prices remain high, and inevitably they fall from their peaks as history has shown.

A look at the top-selling hybrids that have versions powered by traditional gasoline engines shows the difference in payback periods with higher gas prices. The Ford Fusion Hybrid (TMV $27,678; EPA fuel economy rating 41 mpg city/36 mpg highway) has one of the quickest payback periods — three years with gas at $5 per gallon, down from six years at $3 per gallon compared with a comparably-equipped, gas-powered Fusion (TMV $24,493; EPA rating 22/32 mpg).The payback time on the Ford Escape Hybrid (TMV $29,632; 34/31 mpg) is almost halved as well from the regular Escape (TMV $25,779 TMV; EPA 23/28 mpg). In contrast, the Honda Civic Hybrid (TMV $23,542; EPA 44/44 mpg) still takes a hefty eight years for a payback, compared with a gas-only Civic (TMV $19,214; 28/36 mpg); that's down from 13 years at $3 per gallon. In between, the Toyota Camry Hybrid (TMV $25,292; EPA rating 43/39 mpg) reduces the payback from seven years at $3 per gallon to four years at $5 per gallon compared with a regular Camry (TMV $21,758; EPA rating 25/35 mpg). The payback time for the Kia Optima Hybrid and Hyundai Sonata Hybrid falls from eight years to five years from $3 to $5 per gallon compared to their gasoline-only counterparts.

Other hybrids have no gasoline equivalents so the Edmunds.com analysis compares the hybrid to the closest vehicle in the manufacturer's line in terms of size and features. The payback period for the world's best-selling hybrid, the Toyota Prius (TMV $22,807; EPA 51/48 mpg) versus a comparably-equipped gas-powered Toyota Corolla (TMV $16,814; EPA 27/34) drops from nine years at $3 a gallon to six years at $5 a gallon. The Honda Insight (TMV $18,674; 41/44 mpg) registers one of the steepest declines compared with a comparably equipped gas-powered Honda Fit (TMV $16,463; EPA 27/33 mpg) by dropping the payback period to just three years at $5 per gallon, down from six years at $3 per gallon.

And what about the much ballyhooed Chevrolet Volt and Nissan Leaf? The payback period for the extended range, plug-in hybrid Volt (TMV $31,712; EPA 95/93 mpg equivalent) compared with the same-size gas-powered Chevrolet Cruze (TMV $19,656; EPA 25/36 mpg) from 15 years at $3 per gallon to a still-lengthy nine years at $5 per gallon. The Leaf (TMV $28,550; 106/92 mpg equivalent) drops from a payback period of nine years at $3 per gallon to just five years at $5 per gallon compared with the Nissan Versa (TMV $19,210; EPA 27/36 mpg).

In the luxury realm, the variances are far wider. The Lincoln MKZ Hybrid (TMV $33,951; EPA 41/36 mpg) carries the same Manufacturer's Suggested Retail Price as the standard issue MKZ (TMV $33,955; EPA 18/27 mpg) so the consumer pays no premium for higher fuel efficiency economy. At any gas price calculated, the Mercedes-Benz S400 Hybrid (TMV $87,117; EPA 19/25 mpg) over the gas-powered S550 (TMV $89.131; EPA 15/25 mpg) is a good economical decision. Same goes for the hybrid Lexus CT 200h (TMV $33,951; EPA 41/36 mpg) compared with a comparably equipped, gas-powered Lexus IS 250. (TMV $32,768; EPA 19/28 mpg)

But quite the opposite is true for some other luxury models for which the payback period — no matter if gas prices soar to $5 per gallon — is not measured in mere years but in decades because the price differential is so steep, the fuel-economy improvement so small or a combination of the two. For instance, the payback period on a hybrid Lexus LS 600h (TMV $106,210; EPA 19/23 mpg) versus the gas-powered Lexus LS 460 (TMV $77,282; 16/24 mpg) is a whopping 69 years. It's the same story for the BMW Active Hybrid 7 (TMV $97,895; EPA 17/24 mpg) versus the BMW 7 Series (TMV $80,202; EPA 17/25 mpg) even though BMW lowered the base price of the 7 Series hybrid by $5,300 in 2012 from 2011's lofty $100,000 plus. It's a similar case for the Volkswagen Touareg Hybrid (TMV $59,641; EPA 20/24 mpg) vs. the regular Touareg.(TMV $47,648; EPA 16/23 mpg)

Sales of hybrids and electric vehicles could increase — higher gas prices or not — due to the mere fact that consumers have a far more expansive selection of such vehicles than were available during the 2008 gas-price spike. Edmunds.com lists 51 hybrids and eight electric vehicles either currently on sale or hitting showrooms soon. The choices cover a wide range of prices and including a breadth of options from mild hybrids like Buick and Chevrolet models outfitted General Motors' eAssist system, to new members of the Toyota Prius family and to electric vehicles from even more auto companies. Because of a wider selection, Edmunds.com forecasts sales of hybrids, EVs and other alternative fuel vehicles, including diesels and natural gas models, will account for about 7 percent of industry sales in 2017, the year after the next round of federal Corporate Average Fuel Economy (CAFE) standards go into effect. That could mean sales of such vehicles could be about 1 million units. Hybrid sales peaked in 2007 at 346,431 sold. Their market share has not exceeded 3 percent of the market, the highest at 2.79 percent in 2009.

However, these high-tech fuel-sippers will face increased competition for the lowly gasoline engine. The menu of gas-powered vehicles that achieve more than 30 miles per gallon and even 40 miles per gallon is vastly expanding. By Edmunds.com's count, 46 of 327 vehicles on sale in the 2011 and 2012 model years were capable of delivering 30 miles per gallon, combined city and highway fuel efficiency, according to the EPA's formula. That is a nearly 30 percent increase from mid-2011, when Edmunds.com compiled its first list of 30-mpg combined vehicles. In 2010, only one vehicle — the Smart ForTwo — achieved 40 mpg. Today the 40 mpg club is up to nine vehicles and growing.