Lexus' Hybrid cars dominate the premium green vehicle market even as gas prices decline

Lexus Hybrids outsell all other premium luxury brands’ hybrids, electric vehicles, and diesel models. How Lexus came to dominate this important segment and why its relationship with Tesla matters.

Lexus’ year-end sales summary contained a few facts we found very surprising. First off, who knew that November 2013 was the 33 month low for gasoline prices in America, with an average of $3.22? Despite gas prices hitting that low mark over the previous three sales years, Lexus’ hybrid unit sales went up by 14%. That is about double percentage that the overall US car market grew in 2013 (7.6%). The trend that has emerged is that hybrids have moved from niche sales at Toyota and Lexus to mainstream. The days of hybrids selling only during gas price-spikes is apparently over.

Not included in Lexus’ analysis, but a related trend we have noted is that EV sales have stopped growing. One can postulate on the reasons, but over the past 15 months while car sales were going up dramatically, battery electric (BEV) sales have been flat at about 20K to 23K per model for the three models in the US that are considered electric cars and actually sell (Volt, Leaf, Tesla Model S). All other EVs sell in tiny numbers. We predict this will change in 2014 and that the Leaf will bump up by about 20% and the Tesla Model S will also increase. The headlines you see claiming that EV sales doubled usually include Plug-in Hybrids like the Prius and they also don’t tell you that in most of 2012 the Model S was not for sale and the Leaf had constrained production for much of that year. Look at the monthly EV sales on a graph going back 15 months and you will see it is flat.

Diesels are all the rage, except they don’t really sell in big numbers. The up-front price premium of the “affordable” models from VW and Chevy, coupled with the fact that gasoline cars that compete with them have a lower per mile cost for fuel, will be a tough barrier for diesels. Luxury diesels do have an edge on a per-mile cost to drive, except when compared to hybrids. Lexus’ hybrids outsell all luxury diesels, by all brands combined in the US market. This author does not view diesels as either green or cost effective compared to their gasoline and gasoline hybrid competitors, though we know that many prefer to ignore the facts.

In the premium US market Lexus sells 60% of all the hybrid cars sold. One of every six Lexus models is a hybrid and the company sold a total 43,582 hybrids this year according to its official sales numbers. It should be noted that no other automaker makes their green car shipments so clear. The reasons Lexus dominates are many, but one big reason Lexus sells so many hybrids is that they are widely available. Lexus offers hybrid models in its ES, RX, GS, and LS vehicles that are primarily gasoline cars, and the CT is only available as a hybrid. Interestingly, Lexus opted not to bring the new hybrid IS sports sedan to the US market. We suspect it may have been due to capacity and the need to feed its successful sales in the UK and other European markets. Not included in these numbers is the Toyota Avalon which is a premium car that sells very well and can boast that fully a quarter of its sales are the hybrid model. This model is a bridge between near-luxury and luxury and Toyota owns that market as well.

Lexus may also claim to be the world leader in sales of green luxury cars of any type, measured in unit sales, and also probably in total sales dollars. Only luxury BEV maker Tesla really rivals Lexus in the green premium market and its sales of the Model S were around 20,000 unit in 2013. Less than half what Lexus sold. It should be noted that Toyota, Lexus’ parent company collaborates with Tesla on the RAV 4 EV. Toyota also invested $50 million back when Tesla stock was cheap and then sold Tesla its Freemont factory for $40 million. No other company is as closely aligned with Tesla as is Toyota. This close partnership is no accident. Going forward both are posed to continue to dominate their particular niches in the premium green vehicle market.

We will address Toyota’s dominance in hybrids in the passenger vehicle market as well as Toyota being the number one retail automaker in 2013. The topics are related however, because Toyota and Lexus models share the drivetrain technology and the costs for both are lower due to commonality of parts and economies of scale.

Photo of 2014 Lexus GS 450h courtesy of Lexus Media Site.