An “Under-the-Radar” Benefit of Incremental Hybrid Vehicles: Higher Conquest Rates

This review is the second in a three-part series on cannibalization and conquest rates of incremental models; the initial review focused onincremental gasoline models, and the upcoming final section will address the cannibalization rates of incremental full electric models.

New hybrid electric vehicles continue to perform well in the US market. Their combined market share (plug-in and full hybrids) has risen to 12.3% through the first eight months of this year, up from 9.8% a year ago. Further, households with a hybrid in the garage that return to market now are more loyal to the propulsion system: their loyalty has jumped from 37% a year ago to 41.9% this year.*

In this electric vehicle (EV)-focused market, hybrid vehicles have resonated with the public because they usually offer electrification without the substantial EV price premium or the hassle of finding a charging station, as is the case with plug-in hybrids.

Conquest rates

In addition to these consumer benefits, hybrid vehicles also offer an "under-the-radar" benefit to manufacturers and brands: they generally conquest customers from competing brands at a higher rate than their gasoline-fueled counterparts (and higher conquests imply lower internal cannibalization, something brands want to avoid).

This finding, rarely mentioned, came to light in an S&P Global Mobility analysis of the conquest patterns of 19 incremental hybrid models and their gas-powered counterparts. (An incremental hybrid model is a model with a hybrid propulsion system that is added to a brand's product portfolio.)

Key findings from our analysis of 19 recently introduced hybrid or plug-in hybrid electric vehicle (PHEV) models:

• Fourteen of the 19 hybrid models had higher conquest rates than their gasoline counterparts in the same time period.
• Ten models had gaps between their hybrid conquest rates and gasoline conquest rates greater than 10 percentage points.
• Six of the seven models (highlighted in yellow in Table 1, below) with the greatest gaps are from Hyundai Motor Group, which currently ranks third in the US market in retail market share; six other entries are from Toyota Motor Corporation, the US retail market share leader.
• Three models with the greatest gaps, and five of the top six, are in the Compact Utility segment.

Two of the five models with hybrid conquest rates lower than their gasoline rates are Jeep Wrangler and Jeep Grand Cherokee. At first, these results would appear to be counterintuitive, but a closer look at the data reveals that these findings do not necessarily reflect normal buying behavior. From spring 2023 through this past spring, Stellantis restricted dealer stock to hybrid or electric vehicles only for the 13 states with strict zero emission vehicle (ZEV) regulations. Gas models were available only through special order. This restriction inhibited and distorted natural market forces, including inventory levels and retail demand.

Loan payments

The three remaining models with hybrid conquest rates that trailed the rates of their gasoline counterparts — Audi Q5 E, Lexus RX and the BMW XM — may be suffering from relatively high prices. As shown in Table 2 below, the average monthly loan payments for the XM and Q5 E were the highest and second highest, respectively, among the 11 full hybrid models when comparing to their gasoline counterparts. And the RX's average monthly loan payment is the second highest among the 11 PHEVs when comparing to the gasoline model, surpassed only by the RAV4 payment. Loans were the preferred finance type by 34% of the customers for these three models.

Lease payments

A review of data for leaseholders (who constitute 27% of customers for these three models) reveals similar results for two of these three models. As indicated below, a household migrating from an X7 to an XM PHEV will experience a 138% increase in its monthly payment, the third highest increase among the 13 PHEV models. And RX gasoline owners migrating to either a full hybrid or PHEV will have the greatest increase in their monthly payments across all the models in these two categories. (See Table 3.)

Share of segment

It's also important to look at the impact of these incremental hybrids on their shares of segment (shown in Table 4). Here, the results are mixed. Of the six Toyota Motor Corporation models in this group, four of them had greater year-over-year increases in share of segment than the segments themselves. Several other corporations' models, however, did not necessarily see gains exceeding their respective segments. The Jeep Wrangler and the Jeep Grand Cherokee not only had the greatest year-over-year declines in retail registrations among the 19 models; they also had greater declines in year-over-year registrations than the Jeep brand in general. The previously mentioned ZEV-state program may have had unintended consequences in buyer behavior beyond just conquest rates.

In summary, while hybrids are popular and continue to benefit those brands that offer them, a less obvious but equally important advantage is their ability to attract households that already have a competing brand in the garage.

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*For the purposes of this study, mild hybrids were categorized as gas-only vehicles and are not included.

This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.