Hybrids will make a difference to US Gasoline consumption, but when?

CGES | DECEMBER 2005 | SOURCE: Oil in 15

Hybrid petrol-electric vehicles, typified by Toyota’s Prius, are no longer rarities these days on the highways and roads of the developed economies.

Nearly 400,000 hybrids have been sold in the United States since their first appearance in 2000 and although this represents a mere 0.2% of the current US passenger car fleet, sales of these vehicles are growing at over 50% per annum.

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Around 70% of all hybrid sales are in the US and another 23% in Asia, the balance of sales taking place in Europe. At the moment there are only 7 models available (three from Toyota, three from Honda and one from Ford), but by 2008 no less than thirty-five models are likely to be on sale.

By that year around 1.2 million hybrid passenger cars are expected to be on the road in the US and by 2015 it is estimated that 30-35% of all US car sales will be hybrids. Since these vehicles are, on average, about 2.4 times more efficient than their gasoline-fuelled equivalents, they will have a big impact on future US gasoline consumption, but by when?

In order to venture an answer we need to make a number of assumptions. The first concerns the future size of the passenger car fleet in the US. At present the US has about 145 million registered passenger cars, a figure that has been rising at 1.7% per annum since 2000 and which leads to a per-capita estimate of 487 vehicles per 1000 people for 2005, up from 470 per thousand in the year 2000.

We have assumed that the US passenger car fleet will grow at a slower pace from now onwards until 2020 (1.1% p.a.) due to higher oil prices and slightly lower economic growth, yielding a per capita figure of 502 cars per 1000 based on the UN’s medium-range population projection.

Sales and scrapping rates

The next — and crucial — assumption deals with the rate at which hybrids enter and leave the US car pool, which in turn requires a view of hybrid sales and scrapping rates. Recent very high rates of increase of hybrid car sales (above 70% per year in three of the last four years) are typical of new, fashionable products entering the market from a very low base.

These rates of growth are unlikely to be sustained, especially if the price of gasoline retreats from the peaks reached in 2005. Even so, the huge efficiency gains offered by these vehicles, the large number of models that will become available and the likelihood that retail gasoline prices will not return to the low levels of the 1990s, suggest that annual sales of hybrids will continue to grow — we have assumed an exponential rate of 24% per annum between now and 2020.

As for the hybrids’ scrapping rates, they are almost non-existent today in view of the vehicles’ novelty, but scrapping rates will obviously rise as the hybrid fleet ages. We have assumed that hybrid scrapping reaches a rate of 3% of the hybrid fleet by 2009 and stays at that level over the whole of the forecast period. Bringing together our hybrid sales and scrapping rates yields a US hybrid passenger car fleet of 24.5 million vehicles by 2020, which represents a market penetration rate of 14% by that date.

The final set of assumptions, covering annual vehicle mileage and the efficiency of the fleet, is required to enable us to determine the amount of gasoline the US passenger car fleet is likely to consume. In order to keep the number of variable factors down to a minimum we have assumed initially that the average annual vehicle mileage in the US remains steady at 11,840 miles (the 2001 figure, the latest available) and the average (non-hybrid) vehicle efficiency is kept at 15 miles per US gallon.

Effects on gasoline consumption

If we then hypothesize that no hybrids whatsoever enter the US car pool and the passenger car fleet grows as assumed, then the amount of gasoline consumed by the fleet would reach 8.3 mbpd in 2010 and 8.7 mbpd in 2020. On the basis of the penetration rates for hybrids depictedin Table 1, however, the amount of gasoline consumed in the US in 2015 will be lower, but only by 300,000 barrels a day; in 2020 it will be lower still, but again by not as much as might have been expected (only 700,000 bpd).

In other words, the advent of hybrids is not likely to have a material effect on gasoline consumption in the US before 2015: after that date the impact builds up as the share of hybrids in the fleet rises.

What could make a significant difference to US gasoline demand, though, is an improvement in vehicle efficiency. Purely for illustrative purposes (see Table 1), we have tested the impact of two cases of gains in nonhybrid US vehicle efficiency — one with gains of 0.3% per annum and one with improvements of 1% per annum — on US gasoline consumption (in both cases assuming there are no hybrid cars).

The lower rate of gains does not seem to make much difference, which is not surprising since the average miles-per-gallon figure barely rises. However, 1% per annum in efficiency gains does add up to a weighty change in gasoline consumption over fifteen years compared with what would have been the case otherwise.

As the average (non-hybrid) miles-per-gallon figure rises from an assumed 15 mpg in 2005 to 15.8 mpg in 2010, 16.6 mpg in 2015 and 17.4 mpg in 2020, the consumption of gasoline stays the same. On reflection this is perfectly understandable, since the rate of efficiency gains matches the increase in the passenger car stock, while the miles driven are assumed to stay the same.

The targeting of efficiency gains of 1% a year in non-hybrid vehicles is thus likely to have a much greater impact on US gasoline consumption from now till 2020 than hybrid cars gaining a 14% market share by then.

We therefore conclude that hybrid vehicles will not have a significant impact on US gasoline consumption before 2015. The same assumption applies a fortiori to fuel-celled vehicles, which as far as entering the car fleet is concerned are still well over the horizon. After 2015 is another matter, for the share of hybrids in the US passenger car fleet rises considerably, reaching 61% of the pool by 2030.

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