A Hybrid or Electric Future?

According to a recent New York Times “The Daily” podcast episode, in 2023 we are on track for 1 million electric vehicles purchased, which is about 1 out of every 10 cars sold in the US.

And yet the rate of increase in EV sales in the US went down after the Inflation Reduction Act (containing incentives for electric vehicles) was passed. Here is what car dealers are hearing from consumers:

Cost is a big obstacle. It’s still too expensive. In particular if the car doesn’t qualify for the government tax credit, it doesn’t pencil out for the consumer compared to a cheaper alternative. There are other concerns. People are worried on whether they can charge the car often enough and easily enough to get where I want to go. People call it range anxiety. Affordability and range anxiety make for a difficult situation for buyers.

The Daily podcast

The Wall Street Journal recently reported that the New Toyota Camry to Be Sold Only as Hybrid. Toyota has dominated the hybrid market with the Toyota Prius, and is investing heavily in more hybrid models over EVs.

The WSJ writes:

The Japanese automaker is doubling down on hybrids as sales growth for fully electric vehicles slows and other car companies have begun to retrench on some of their EV plans

Toyota executives are seeing hybrids as an important solution to the consumer’s range anxiety:

Toyota executives say the recent wave of interest has prodded the company to further invest in hybrids, which they view as critical in appealing to buyers who might want an electric car but don’t regularly have a place to plug in.

Toyota executives, including Chairman Akio Toyoda, have long been skeptical about the industry’s sharp pivot to full EVs, saying that in many parts of the world where the company sells cars, there isn’t adequate infrastructure and access to clean energy to charge EVs.

And unlike manufacturers losing money on Electric vehicles, Toyota is now making a profit from hybrid vehicles:

Earlier this month, the car company reported record-breaking profit, thanks in part to sales of hybrid vehicles, which it sells more of than any other automaker.

After decades of working on hybrids, Toyota executives say the company is now making a profit on hybrids that is comparable to that of its purely gasoline-powered vehicles. While car companies are investing heavily in EVs, many still struggle to make money on them. 

Other automakers are starting to follow suit:

Recently, other automakers have started to review their electrification strategies. Earlier this year, Ford said it wanted to offer an array of options including hybrids and quadruple its hybrid sales in the next five years.

Conclusions

I am bullish on Toyota for the next 5-10 years.

While the electric vehicle infrastructure is being built, Toyota is perfectly situated to address the two primary concerns consumers raise when considering purchasing an electric vehicle: cost and range anxiety.

The 2024 Prius, with a starting MSRP of $27,650 is a stunning vehicle. It’s not only the best looking Prius they have designed to-date, I’d argue it’s one of the nicest looking sub $30k cars available on the market.

Here are some PE ratios:

CompanyPE (TTM)
Toyota (TM)10.12x
Ford (F)6.8x
Honda (HMC)8.67x
Tesla (TSLA)76.5x
Automotive Industry60.68x
S&P 500 (SPX)24x