Toyota’s Hybrid Bet Vindicated by Big Gains in U.S. Market Share

(Bloomberg) --

As automakers prepared to roll out their first-quarter sales results, prognosticator Cox Automotive said it expects Toyota to post strong gains and maybe even beat General Motors again for the quarterly U.S. crown. It's a neck-and-neck race that GM easily won in the past.

One reason for the change is the Japanese automaker has managed to secure better access to semiconductors. More chips means more production, inventory and sales in an economy with low unemployment and widespread vehicle shortages. Another reason is Toyota has hybrid-electric vehicles up and down its lineup at a time of record gasoline prices, now averaging well above $4 a gallon.

Toyota's strategy to move cautiously into electric vehicles while aggressively wagering on hybrids — which are very efficient but still burn gasoline — is paying off. One thing Russia's invasion of Ukraine and the resulting spike in energy prices is showing us is that many consumers won't just tolerate paying big sums at the pump while waiting for EVs to become more available and affordable.

A Prius Prime hybrid gets 54 miles per gallon and starts at under $30,000. A roomier Toyota Venza starts at under $35,000 and gets over 40 mpg. Those are attractive specs to middle-class buyers who want to save on fuel.

This is not to say EVs aren't drawing more interest with gasoline being so expensive. Tesla is also expected to continue its strong sales growth, and car-sales websites show more consumers are increasingly scoping out EVs. But there are only so many fully electric options on the U.S. market, and they cost a lot more.

Aside from the Chevrolet Bolt electric utility vehicle, which starts at $33,500 and just went back into production after a nasty recall, there aren't EVs available that come close to Toyota's hybrid price points. Volkswagen's cheapest ID.4 costs more than $40,000, as does Kia's EV6 and Hyundai's Ioniq 5, and they all get less than 300 miles of range with the base battery option. Tesla's Model 3 now starts at $47,000.

Some automakers, seeing Tesla's growth, have gone headlong into EVs and moved away from hybrids. GM has ditched them altogether. In the long term, that's the correct move. But if geopolitics continue on the current path and energy prices remain volatile, hybrids will be a popular choice for consumers who can't yet afford an EV. Last year, hybrids were 7.5% of sales in the U.S., more than double the market share for EVs, according to AutoForecast Solutions. Both segments are all but certain to grow this year.

Toyota took its time shifting to battery-electric vehicles in part based on the judgment most consumers can't afford them yet. In December, the company earmarked about $35 billion of investment to build 30 EVs by the end of the decade. GM has said it will spend that much by 2025, and Ford has a similar commitment.

Last year, Toyota director Shigeki Terashi said it was too early to focus on just EVs. He may have looked like a luddite then to the company's critics. Right now, he looks pretty smart.