Forty-five hybrid models were available in 2014 in the US; these captured about 2.75% of the overall US passenger vehicle market, down slightly from 3.19% in 2013. Hybrid market share is about 6% of vehicles sold in California—more than twice the national average—and about 20% in Japan (30% if the kei car segment is excluded).

Historical and projected hybrid system direct manufacturing cost. The purple line shows the estimated reductions for each new generation of the Prius. The green line reflects FEV’s 15% cost reduction for the power transmission/clutch/motor subsystems from 2010 to 2013, assuming that the same reductions are achieved in all parts of the hybrid system. The lighter dashed blue line projects future P2 hybrid system costs assuming that the 5% annual cost reduction continues into the future. The darker blue lines illustrate an alternative path to similar cost reductions, with 2.5% annual cost reductions plus implementation of higher-power Li-ion batteries that should reduce future battery costs by at least $500. Also shown on the graph are 2017 cost estimates for the P2 (light blue) and BAS (red) systems, plus the mild hybrid cost estimate range from Valeo (red circle). The red dashed line projects the mild hybrid cost estimates using the same 5% annual cost reduction. Click to enlarge.

Hybrids are far from a mature technology, and innovations and improvements are coming rapidly. Improved batteries designed with high power density for hybrid applications will start arriving soon. Hybrid systems other than the input power-split design pioneered by Toyota 17 years ago are still in early stages of development, and present huge opportunities to reduce cost through better designs, learning, and economies of scale.

… Because most hybrid systems are at a relatively early stage of development, costs are still relatively high and manufacturers are looking to recover some of the costs by charging customers a premium for hybrid vehicles. Thus, currently the hybrid system needs to offer a major improvement in fuel economy to entice customers to pay the price premium. This favors full-function hybrids and works against mild hybrid systems. However, in the future, lower cost, mild hybrid systems will be able to compete directly against conventional technology improvements on a cost-benefit basis. Thus, hybrid market penetration will likely increase only modestly in the near term, but as costs drop hybrids will become just another technology that manufacturers sell on its positive efficiency and drivability impacts, not on the technology itself, similar to what is currently occurring with turbocharged gasoline engines.

—“Hybrid Vehicles: Technology Development and Cost Reduction”

Toyota currently dominates the US hybrid market, with some 66% of sales in 2014; Ford takes the second spot, with 14% of the market. Both use the same hybrid system design, an input power-split system. This type of system uses a planetary gear to distribute power between the engine, generator, traction motor, and drivetrain. This system excels in optimizing engine efficiency during city driving, the paper notes, and is also easily adaptable to plug-in operation. The downside is the cost associated for the two large electric motors and associated power electronics.

Other types of hybrid systems are in earlier stages of development and deployment. Nissan, Hyundai/Kia, VW/Audi/Porsche, BMW, Subaru, and Mercedes all recently introduced variants of a single-motor, twin-clutch hybrid system (P2). Hyundai/Kia, with 8% of total 2014 hybrid sales, is so far the leading seller of P2 hybrids; P2 hybrid market share grew from 9% in 2013 to 12% in 2014.

Hybrid systems can reduce fuel consumption and CO₂ emissions by up to 35%, equivalent to more than a 50% increase in fuel economy, German notes, with the precise reduction varying with the sophistication of the hybrid system. Further, German observes:

The Vincentric Hybrid Analysis provides a direct comparison of the efficiency benefits and costs of hybrid systems. For any individual model the difference in efficiency between the hybrid model and the non-hybrid comparable may be affected by differences in powertrain, weight, tire rolling resistance, and aerodynamic drag. For example, all of the Toyota hybrid systems are similar, yet the calculated fuel consumption reduction ranged from 24% on the Lexus RX450h to 47% on the Lexus CT 200h.

While conducting a detailed analysis of the possible bias for each hybrid vehicle comparison selected by vincentric is beyond the scope of this report, it is clear that in some cases the non-hybrid vehicle has lower performance and fewer consumer features than the hybrid vehicle (such as the Honda Accord) and in other cases the non-hybrid vehicle has higher performance and features (such as the Lincoln MKZ). If these offsets are random and are not systematically biased, averaging the data by manufacturer should reduce the bias in the results, although the amount of bias is still unknown.

Correspondingly, consumer payback for hybrid purchases, in terms of fuel savings versus hybrid price premium, also varies widely from vehicle to vehicle. Currently, roughly 29% of hybrid models (9 out of 31) pay back the initial hybrid price premium with fuel savings within 5 years. Roughly 61% of hybrid models (19 out of 31) pay back within the full useful life. On average, German says, the fuel savings over the full useful life are about $1,300 more than the initial price premium.

However, the roughly 3% market share for hybrids suggests that the fuel savings are not large enough to motivate most customers to pay for the incremental cost. Hybrids also face the rising challenge of improved conventional vehicles. On the other hand, German observes:

The tenfold increase in hybrid sales from 2003 to 2013 suggests that many of the early concerns about hybrids, such as reliability, battery life, resale value, and safety, have been successfully addressed. In addition, the electric motor provides instant torque, improving drivability and performance especially at low speeds, which is a desirable feature. Thus, the key to increased hybrid market share is simply getting the cost down and improving the payback.

Promising technology developments for cost reduction. There are several developing technology areas that offer the promise of cost reduction, including batteries with higher power density; design improvements for P2 hybrids, and lower-cost 48V hybrid systems.

• Battery subsystems are a significant part of the cost of hybrid systems—about $1,375 for a 1.0 kWh Li-ion pack. New cell chemistries optimized for high power have been in development for several years and should reach the market as early as this year. Instead of 1.0 kWh, future high-power Li-ion batteries for typical full-function hybrid applications should be only about 0.3 to 0.5 kWh, German says. These high-power batteries will cost more per kWh than current Li-ion designs, but the cost savings should still be at least $500.

• While the input power-split hybrid design used by Toyota and Ford is in its fourth generation, first-generation P2 hybrids are at a much earlier point on the learning curve. This opens the possibility for significant cost improvement.

  For example, all current P2 hybrids install the motor between the engine and the transmission. Although this minimizes the amount of redesign required, it requires a separate case, cooling system, oiling system, and clutch for the motor. It also compromises powertrain packaging. Installing the motor and other hybrid components inside the transmission will result in large cost reductions and packaging improvements.

  Additional opportunities to reduce cost and improve efficiency in the future include removing the torque converter, use of a less expensive conventional manual transmission (enabled by using the electric motor to fill in the engine torque gaps), and less expensive designs to coordinate the friction brakes and regenerative braking.

• More sophisticated and better-optimized mild hybrid systems offer the greatest opportunity to improve hybrid cost-effectiveness, German says. Manufacturers and suppliers are still sorting out the relative advantages and costs of the many different possible configurations, such as voltage level (12V–48V); energy storage (lead-acid, lead-acid plus ultracapacitors, NiMH, Li-ion) and drive type (BAS or P2 configurations). An additional advantage of 48V systems is that they can power an electric motor integrated within the turbocharger to reduce turbo lag and improve turbocharged engine efficiency and response.

Because most hybrid systems are at a relatively early stage of development, costs are still relatively high and manufacturers are looking to recover some of the costs by charging customers a premium for hybrid vehicles. Thus, currently the hybrid system needs to offer a major improvement in fuel economy to entice customers to pay the price premium. This favors full-function hybrids and works against mild hybrid systems. However, in the future, lower cost, mild hybrid systems will be able to compete directly against conventional technology improvements on a cost-benefit basis. Thus, hybrid market penetration will likely increase only modestly in the near term, but as costs drop hybrids will become just another technology that manufacturers sell on its positive efficiency and drivability impacts, not on the technology itself, similar to what is currently occurring with turbocharged gasoline engines.

—“Hybrid Vehicles: Technology Development and Cost Reduction”