Now that Congress and President Turmp have ended subsidies and regulatory favors that amounted to tens of thousands of dollars per EV, the U.S. auto market is pivoting back to physical and economic realities. The latest sign in the return to sanity is a rapid shift in emphasis from electric vehicles to hybrids. As reported in the Wall Street Journal, Toyota is set to reap huge benefits from its focus on hybrids over EVs and is now doubling down on its strategy. Other automakers that bet on going directly to EVs are racing to follow suit.
My grandfather, a former General Motors engineer, foretold this to me two decades ago when he explained that hybrids always made more sense than EVs because hybrids could eliminate the biggest disadvantage of gasoline engines—their low torque and poor fuel economy at low speeds—with a very small battery and electric motor. Since batteries are at least 10 times less energy dense than gasoline, lugging around a full-size EV battery only made sense for small cars, and only if that battery could be made cheaply enough.
Toyota recognized these realities all along and was willing to preach them while everyone else was falling for the EV gospel. They published a marketing document in 2023 emphasizing that the amount of materials to make one EV battery can be used to make 90 hybrid batteries. While cloaking the document in green virtue-signaling—Toyota’s main boast was that those 90 hybrids would result in 37 times more emissions reductions over their lifetime than one EV—the company was also nodding to the fact that hybrids made more sense for auto consumers given the current state of battery technology.
Meanwhile, other automakers were betting on the federal government to push the U.S. toward all EVs, despite physics and the obvious desires of consumers saying otherwise. As the WSJ article quotes Volkswagen’s American chief, “We thought, we’ll kind of leapfrog the hybrids.”
I ran into this exact problem when we went our local Volkswagen dealership to buy a new car for my wife this past February. Displayed at the front of the showroom was an ID. Buzz electric minivan, which looked kind of nifty to my 5-year-old son but is nothing remotely close to what my wife would want to drive. When I asked if they sold hybrid versions of the Atlas SUV, which we would have been happy to buy, the straight answer was, “VW doesn’t make those.” So, we shrugged our shoulders and bought a regular gasoline-powered Atlas.
Now comes the news that “Volkswagen is developing hybrids of its bestselling U.S. vehicles, the Tiguan and Atlas, after consumers and dealers demanded them.” What really happened is not a shift in consumer tastes but a shift in policies that is finally allowing automakers to sell what consumers have wanted all along. Massive increases in the federal fuel economy standards—along with a multiplier that gave EVs nearly seven times as many fuel economy credits than their actual fuel economy—are how we ended up with the absurdity of Ford pushing an all-electric F-150 and Volkswagen building an all-electric minivan, instead of more hybrid SUVs and plug-in EVs that made sense for consumers.
Sure, there technically was no “EV mandate,” but the fuel economy regulations and the EPA’s greenhouse gas emissions standards were already restricting what automakers were willing to produce. Where would the U.S. auto market have been in a few more years if these regulations were not eliminated?
As we concluded in our 2023 research paper on EV subsidies: “The lesson to be learned from this study is that markets, not government, drive innovation and efficiency … Perhaps if D.C. politicians and bureaucrats stop trying to force Americans to build and buy their preferred types of vehicles, the cleaner and brighter future that they imagine will actually materialize.” Recent event show that if these policy changes can stick, maybe that brighter future will come even faster than we expected.
For more on EV subsidies, see our 2023 paper HERE and our 2025 update HERE.
Also, check out an interview I did recently with Geoff Pohanka, former Chairman of the National Automobile Dealers Association. HERE
Finally, listen to Toyota’s chief scientist, Gill Pratt, explain Toyota’s strategy at our Energy Future Forum back in May 2024. HERE
