With customer demand fuelling the rise of the hybrid, where does that leave EVs?

Sheena Patel is a Director and Automotive sector specialist at Vendigital. She recently shared her insights with E&T.

Automakers are facing a dilemma – with demand for hybrid cars burgeoning but having already invested in building pure EV platforms, what should they do now?

The latest data on new car registrations in September 2024 from the Society of Motor Manufacturers and Traders confirms that sales of new hybrid EVs rose 2.6% year on year, with plug-in hybrids up by 32.1%. Hybrid EVs now represent 14.2% of the total market.

Meanwhile, sales of new battery-powered electric vehicles (BEVs) are growing, but not quite as quickly as predicted, and new internal combustion engine (ICE) vehicles still make up more than half of all new car uptake.

The global picture is similar, if not further skewed in favour of hybrid sales. In China, for example, hybrid cars can be significantly cheaper than pure EVs and somewhat cheaper than ICE vehicles, which is helping to drive demand.

Elsewhere, demand for hybrid cars has increased as consumers opt for vehicles that eliminate range anxiety but allow them to enjoy the benefits of electrification at the same time.

Vehicle manufacturers such as Volvo and Toyota have reported a strong uplift in demand for hybrid vehicles. In general, manufacturers that have adopted a middle-line approach to the EV transition, rather than betting the house on a complete pivot at the outset, are finding that the current growth in demand for hybrid cars is helping to offset slower-than-expected sales of pure EVs and drive revenues in the short term.

From a supply chain perspective, vehicle manufacturers operating with a mix of powertrain technologies are well placed to take advantage of the short-term uptick in demand for hybrid vehicles because they can utilise existing platforms.

Revenues generated from hybrid sales could also help to accelerate the EV transition by facilitating investment in battery technologies and EV-essential capability. Selling more hybrids could even become the mechanism that enables the permanent phase-out of ICE vehicles.

However, there could be some unexpected challenges ahead, even for manufacturers operating with a mix of powertrain technologies. Soaring demand for hybrid vehicles has led to a global surge in demand for catalytic converters, which clean the emissions from ICE exhaust systems.

Catalytic converters contain metal catalysts such as platinum, palladium and rhodium, and demand for these materials, which had declined significantly due to the EV transition, is currently undergoing a resurgence. This could lead to supply-side disruption, and securing supplies of metal catalysts will be critical to meeting demand for both hybrid and ICE vehicles in the short term.

While there are supply-side challenges linked to the production of hybrid and ICE vehicles, much bigger challenges lie ahead for makers of BEVs. EV production currently accounts for about half of the global demand for critical minerals including lithium and copper, and this is expected to increase four- or even six-fold by 2040.

The mining industry has already warned that there isn’t enough copper in the world to meet future demand, and the International Energy Agency has stated that by 2030 global cooper mines will only be able to meet 80% of the world’s demand.

With key and critical minerals diminishing rapidly due to sharp increases in demand, partly due to EV production and industrial electrification more widely, carmakers and their key suppliers must maintain or increase their investment in R&D to find alternative technologies.

For example, alternative battery chemistries could ease supply-side pressures significantly and help BEV makers and OEMs to meet global demand in the future. However, they must also consider the impact this could have further down the value chain.

For example, a more diversified approach to battery chemistry could make it more difficult for the supply chain to build sufficient capability in the emerging technologies from manufacturing processes to recycling.

With slower-than-expected growth in demand for BEVs already causing some car makers and OEMs to slow down their plans to onboard capacity, there is concern that investment in the EV transition could start to wane.

To address this, the government must act to incentivise the search for alternative battery chemistries at the same time as encouraging more consumers to buy pure EVs.

More vertical supply chain collaboration could also give the industry a clearer view of the challenges that lie ahead – and a better opportunity to solve them together.