NADA Market Review: Hybrid Electric Vehicles

June 2014
NADA Market Review:
Hybrid Electric Vehicles
Perspective | June 2014
TABLE OF CONTENTS
Introduction ................................................................................................................................. 2
Higher Gas Prices Remain, but Hybrid Volatility Wanes ............................................................. 3
ICE Fuel Economy Improves Substantially ................................................................................... 5
Looking Ahead: Near-Term Hybrid Outlook ............................................................................... 6
At NADA Used Car Guide ............................................................................................................. 8
Market Review: Hybrid Electric Vehicles
After starting off slowly due to unusually severe winter weather, new vehicle sales have
surged over the past few months. The new vehicle seasonally-adjusted annual rate
(SAAR) from March through May averaged over 16 million units, which is the first time
since the onset of the last recession that a similar streak has occurred. Better yet, May’s
SAAR of 16.7 million was the highest figure recorded in more than seven years. Overall,
new vehicle sales were up by 5% over the first five months of the year.
Used vehicle demand was equally strong over the period as the average price of used
vehicles up to eight years in age climbed by 0.5% from April to May thereby pushing year
-to-date prices nearly 3% higher than they were last year.
The year’s positive momentum hasn’t been universal, however.
Per WardsAuto data, hybrid electric vehicle (HEV)
sales are down 10% year-to-date and only a few out
Hybrid Share of Total New Vehicle Sales
2011's Japanese Tsunami adversely affected new hybrid sales
of dozens of hybrid models have had sales improve.
3.5%
This includes Toyota’s hybrid powerhouse Prius
3.0%
Prius C are down by 1%).
The drop in hybrid sales amid a market that’s
expanding overall means that share for the group has
also contracted. Hybrid share of total new vehicle
sales has fallen from 3.1% in 2013 to 2.9% this year,
which is the first non-production related decline
Share of New Vehicle Sales
where sales are off by 19% (deliveries of the smaller
3.0%
3.1%
2.9%
2.8%
2.4%
2.5%
2.4%
2.2%
2.0%
2.0%
1.5%
1.5%
1.0%
0.5%
0.0%
2006
Source: WardsAuto
2007
2008
2009
2010
2011
Calendar Year
2012
2013
2014
(thru
May)
recorded since 2010.
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As far as used hybrids are concerned, by-and-large
1-Year-Old Toyota Corolla & Prius Value Retention
depreciation for group has historically been higher
Retention is calculated by dividing average trade-in value by equipped new vehicle
price.
85%
than on comparable internal combustion engine (ICE)
their original value over time. Toyota’s Prius has been
an exception to this, however.
Back in 2010 the percentage of new value retained by
a one-year-old used Prius was 65%, two-percentage
76%
75%
75%
75%
73%
70%
70%
63%
65%
69%
65%
60%
55%
50%
45%
points higher than the Toyota Corolla’s figure of 63%.
The following year, an all-new design and
Prius
79%
80%
Average Used Value Retention
models, and as a result, hybrids tend to retain less of
Corolla
83%
40%
2010
2011
2012
2013
2014 (thru June)
Calendar Year
Source: NADA Used Ca r Guide
substantially higher gasoline prices widened the Prius’
retention advantage to 7-points, and even though the hybrid’s retained value fell from
83% to 79% in 2012, it stayed well above the Corolla’s figure of 75%.
But since then the roles have reversed. Last year one-year old Prius retention fell to
70%, 3-points lower than the Corolla’s 73%, and so far this year Corolla retention stands
at 75%, 6-points above the Prius’ 69%. In depreciation terms, Prius trade-in values for
2007 – 2013 models have fallen by an average of 12% year-to-date, while Corolla values
have dropped by a lesser 8%.
The recent softness in new hybrid sales and the moderation in used price depreciation
over the past couple of years can largely be tied to relatively consistent gasoline prices
and the improved fuel efficiency of ICE models.
Higher Gas Prices Remain, but Hybrid Volatility Wanes
From 1992 – 2003, gasoline prices generally hovered between $1.00 - $1.50 per gallon
and monthly changes in prices were predominantly in
the neighborhood of 4 cents. In the ten years since,
U.S. Regular Grade Gasoline Prices
Retail, All Formulations (USD/gal., NSA)
$4.50
$4.00
increased global demand for, crude oil have raised
$3.50
both prices and their monthly volatility.
$3.00
From 2011 - 2013, pump prices and their monthly
Average Price
however, lower domestic production of, and
$2.50
$2.00
swings averaged $3.55 per gallon and 13 cents,
$1.50
respectively – both figures three times more than
$1.00
$0.50
Source: U.S. Energy Information Administration
Jan-14
May-13
Jan-12
Sep-12
May-11
Jan-10
Sep-10
Jan-08
Sep-08
May-09
May-07
Jan-06
Sep-06
May-05
Jan-04
Sep-04
May-03
Jan-02
Sep-02
May-01
Jan-00
Sep-00
May-99
Jan-98
Sep-98
May-97
Jan-96
Sep-96
May-95
Jan-94
The dramatic surges in gas prices that occurred earlier
$0.00
Sep-94
what was recorded back in the 1990s and early 2000s.
Period
on in this period pushed many consumers toward fuel
efficient small cars and hybrids, thereby driving up both new vehicle sales and used
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vehicle prices. For example, sales of new Toyota Prius jumped by 28% on an annual basis
in March 2012 as gas prices went soaring from roughly $3.30 per gallon at the start of
the year to $3.90 per gallon in April. Granted, new vehicle sales are historically strong in
March (the month is usually one of, if not the, strongest in a given year), however, the
Prius’ growth was more than double the 13% improvement recorded by both Toyota
and the overall market.
The effect gasoline prices have on hybrid fortunes is perhaps even clearer when looking
at used vehicle price data. Again using Toyota’s Prius as a proxy for all hybrids, the
average wholesale price of a 2010 Prius rose by a whopping $5,400 when gas prices
jumped by nearly 80 cents to an average of $3.91 over the first five months of 2011.
Certainly some of this increase was due to stalled Prius production stemming from the
tsunami that struck Japan in March of that year, but Prius prices had already accelerated
by $3,400 before that event occurred.
Another acute increase took place the following year when 2011 model year Prius prices
improved by $1,800 as gas prices rose by 60 cents over Q1 2012. But while hybrid price
growth was well above average for the season (overall market prices grew by $1,100), it
was substantially less than what was recorded in the year prior. In fact, fast forward to
Used Toyota Prius Prices vs. Gasoline Prices
The average wholesale price for a given model year Toyota Prius versus regular grade gasoline prices
(all forumulations, national average)
2010 Prius
2011 Prius
2012 Prius
2013 Prius
$4.00
$23,000
$3.90
$22,000
$3.80
$21,000
$3.70
$20,000
$3.60
$19,000
$3.50
$18,000
$3.40
$17,000
$3.30
$16,000
$3.20
$15,000
$3.10
$14,000
$3.00
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
$24,000
Gas Price (per gallon)
Average Prius Price
Reg. Grade Gas $
Period
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2014 and we see that this reduction in used hybrid price volatility has continued, despite
gasoline price volatility changing relatively little.
Gas prices spiked by 40 cents to $3.85 per gallon from July to September 2012, but
unlike in the past, Prius prices actually fell. Similarly, there was no lift in used Prius prices
through Q1 2013 when gas prices again increased by 40 cents.
While two-year old Prius prices did grow by $700 through March this year,
the increase was less than the $1,000 improvement recorded for the
overall market and can be attributed to typical seasonal factors rather
than the roughly 25 cent rise in fuel prices.
Hybrid sales trends of the past few years strongly suggest that consumers
have become desensitized to dramatic and rapid changes in gas prices as
the occurrences have become more frequent. Essentially, consumers have
adjusted both expectations and household budgets to today’s higher level
of fuel prices, to the detriment of hybrid demand. Compounding matters,
Essentially, consumers have
adjusted both expectations
and household budgets to
today’s higher level of fuel
prices, to the detriment of
hybrid demand.
fuel economy advances in gasoline powered vehicles has cut into the
efficiency advantages of hybrids.
ICE Fuel Economy Improves Substantially
Data from the U.S. Department of Transportation shows that new car corporate average
fuel economy improved from an average of 32.9 miles per gallon (mpg) for 2009 model
year cars to 36 mpg for 2013 models. Admittedly, some of this 9.4% increase was due to
shifts in segment share (i.e. more small cars sold versus fewer big sport utilities), but
efficiency gains on gas-powered autos – which comprise more than 93% of all new
vehicles sold new – played a major role.
Specific examples of gas car mpg progress include 4-cylinder versions of the Chevrolet
Malibu and Honda Accord, where combined city and highway fuel economy improved
by 16% and 25%, respectively, from model years 2009 to 2014. Fuel economy for the
Toyota Prius also increased, but by a smaller 9%.
Improvements in ICE fuel economy mean that it takes longer for hybrid savings at the
pump to offset their higher upfront costs. For example, assuming current gas prices and
manufacturer rebates (if any), as well as 15,000 miles driven annually, it would take
nearly five years of fuel savings to negate the higher purchase price of a 2014 Toyota
Camry XLE hybrid versus a gas-powered XLE. It would take roughly four years to reach
this point for a consumer who had elected to purchase a Ford Fusion SE Hybrid rather
than a gas-only Fusion SE. A Lincoln MKZ hybrid buyer would be ahead immediately
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because hybrid and gas variants carry the same MSRP; however, Lincoln’s hybrid pricing
strategy is an exception.
Looking Ahead: Near-Term Hybrid Outlook
Given historical trends, used hybrid prices moving
Gasoline Price Forecast
forward will be largely influenced by changes in
U.S. EIA reference case forecast of average gasoline prices, all grades, including taxes. Nominal
dollars.
$4.25
gasoline prices, which are expected to dip over the
next few years mainly because of increased domestic
technologies.
In its 2014 Annual Energy Outlook report, the U.S.
Energy Information Administration (EIA) projects that
the extraction of oil from tight formations will drive
U.S. crude production to 9.6 million barrels per day
(MMbbl/d) in 2019, 3.1 MMbbl/d higher than in 2012
$3.75
$3.83
$3.71
$3.62
$3.59
$3.49
$3.50
Price p/gal.
production of crude oil made possible by new
$4.05
$3.95
$4.00
$3.49
$3.33
$3.27
$3.27
$3.32
2016
2017
2018
$3.38
$3.25
$3.00
$2.75
$2.50
$2.25
$2.00
2013
Actual
2014
2015
Source: U.S. Energy Information Administration, Annual Energy
Outl ook 2014
2019
2020
2021
2022
2023
2024
2025
Calendar Year
(when gas prices reached a record annual average). The increase in domestic crude oil
production is expected to not only reduce the U.S.’ dependence on imported petroleum,
but also keep gasoline prices at or below current levels through 2021.
The EIA’s Reference case projection, which is described as “a business-as-usual trend
estimate, given known technology and technological and demographic trends,” has
gasoline prices falling from an average of $3.62 per gallon in 2013, to $3.27 per gallon in
2017. Prices are projected to gradually increase thereafter, but aren’t forecast to exceed
2013’s level until 2022. Gas prices could also moderate more than predicted. The EIA
goes on to say in the AEO2014 report that “there is greater upside uncertainty than
downside uncertainty in oil and natural gas production.”
The organization also states that regulatory mandates to improve fuel efficiency will
reduce light-duty vehicle energy use and in turn lead to lower gasoline consumption
over the projection period (U.S. corporate average fuel economy, or “CAFE”, regulations
require that manufacturer fleets achieve an average of 54.5 miles per gallon by model
year 2025, up from 35.5 mpg in 2016). The required improvements in fuel economy
would also reduce pressure on gasoline prices.
Given the predicted stability in gasoline prices, NADA forecasts that hybrid depreciation
will remain higher than it will for similar gas-powered counterparts. As an example,
trade-in prices for the 2012 model year Toyota Camry LE hybrid are expected to fall by
13% and 18%in 2014 and 2015, respectively. By comparison, prices for the gas-only
Camry LE are forecast to drop by 8% and 13%. While the 10% and 13% losses expected
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on the ’12 Toyota Prius hybrid are less than other hybrids, these figures are above the
9% decline anticipated for the gas-powered Toyota Corolla.
Forecasted Annual Change in Used Vehicle Prices
NADA's used price forecast for select 2012 model year gasoline, hybrid and plug-in hybrid electric models
Forecasted Annual Change in Used Price
Make
Model
Trim Level
Fuel Type
CY 2013 v. 2014
CY 2014 v. 2015
Volt
Sedan 4D 1.4L I4 PHEV
Plug-In Hybrid Electric
Chevrolet
-24%
-24%
Civic
Sedan 4D 1.5L I4 HEV
Hybrid Electric
Honda
-14%
-16%
Civic
Sedan 4D LX 1.8L I4 Auto
Gas
Honda
-11%
-15%
Insight
Hatchback 5D EX 1.3L I4 HEV
Hybrid Electric
Honda
-16%
-20%
Optima
Sedan 4D 2.4L I4 HEV
Hybrid Electric
Kia
-23%
-18%
Optima
Sedan 4D LX 2.4L I4
Gas
Kia
-15%
-15%
Camry
Sedan 4D LE 2.5L I4
Gas
Toyota
-8%
-13%
Camry
Sedan 4D LE 2.5L I4 HEV
Hybrid Electric
Toyota
-13%
-18%
Corolla
Sedan 4D L 1.8L I4
Gas
Toyota
-9%
-9%
Prius
Liftback 5D 1.8L I4 HEV
Hybrid Electric
Toyota
-10%
-13%
Prius
Liftback 5D 1.8L I4 PEV
Plug-In Electric
Toyota
-19%
-21%
Source: NADA Used Car Guide
Moderating gas prices and the increased competitiveness of ICE vehicles
will also do little to elevate demand for plug-in EVs; as a result, NADA
forecasts that deprecation for plug-in hybrid electric (PHEV) and plug-in
electric (PEV) vehicles will significantly outpace both traditional hybrid and
gas-powered losses over the period.
In closing, hybrids will remain a viable choice for consumers who live in
urban areas or those adhering to environmentally-friendly ideals, and
Toyota has proven with the Prius that hybrids can be strong performers in
both new vehicle sales and used vehicle retention.
However, the likelihood that gas prices will at least remain at current
levels near-term, the federally-mandated requirement pushing fuel
economy to improve and a lower price point for non-hybrids enhance the
NADA forecasts that
deprecation for plug-in hybrid
electric (PHEV) and plug-in
electric (PEV) vehicles will
significantly outpace both
traditional hybrid and gaspowered losses over the
period.
practicality of gas-powered vehicles. As a result, hybrids will likely be more
challenged to woo new consumers into the EV fold over the coming years.
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