Automotive > Powertrain, Body, Chassis & Safety Blog

NAFTA Still On Course For PHEVs, Despite Low Gas Prices

by Kevin Mak | Jan 16, 2015

In the latest Insight report covering the Detroit Auto Show, Strategy Analytics sets out scenarios from recent low gasoline prices and the potential impact on powertrain system demand.  Detroit 2015: Low Gasoline Prices But OEMs Target Plug-In Hybrids For The Long-Term states that while consumers will be tempted to purchase new “gas guzzlers”, OEMs are reluctant to slow down their development of plug-in powertrains. 

Risks that prevent the U-turn on plug-in powertrains are the danger that gasoline prices will quickly return to their upward path and the stringent mandates from the US federal government, in the form of CAFE (Corporate Average Fuel Economy) for 2025 – requiring a fleet average of 54.5 mpg (4.32 l/100 km), and the ZEV (Zero Emission Vehicle) Requirement in states such as California – for at least 25,000 sales in the period 2015-2017.  Competition within certain model segments, such as pick-up trucks, for better fuel economy has also intensified.

Possible scenarios resulting from low gasoline prices include raising fuel taxes and modifying the severity of mandates.  A Republican-dominated Congress is unlikely to raise taxes, although a staged compliance of CAFE remains a possibility.  However, from the sizeable number of new models and concept cars featuring plug-in powertrains at this year’s Show, OEMs do not assume that these scenarios will actually happen.  OEMs have already committed their long-term investment programs according to earlier market conditions of high gasoline prices and tightening mandates, with the federal tax credit incentive only made available for ZEV, or plug-in vehicle, purchases.

From low gasoline prices and without incentives for incremental fuel saving, the payback on the cost premium from non-plug-in powertrains will be longer – but on plug-in powertrains, the fuel saving is much greater and offsets this fall in gasoline prices.  OEMs have shown that platform strategies, such as sharing battery cell technologies across different models to raise economies of scale, can also limit the cost premium of the electrified powertrain.  

With the change in gasoline prices, OEMs do not change their powertrain strategies, but adapt them to lower costs further and accelerate the affordability of their fuel saving technologies.  While market conditions in Europe, Japan and Korea raise fuel economy from a wider range of technologies, the US has favoured the battery electric and plug-in hybrid as their long-term powertrains of choice.

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