How Toyota’s Long-term Investment In Hybrids Is Reaping Rewards Now

Summary

• Hybrids are growing in popularity as they require no lifestyle changes and have impressive fuel economy benefits despite minimal cost differences.
• Toyota’s long-term commitment to hybrids has paid off, leading to a 74.1% sales increase in electrified vehicles in Q1 2024.
• Toyota dealers benefit from a sustainable business relationship with the brand, leading to high gross margins and excellent customer satisfaction.

Toyota is one of the two pioneers (Honda being the other automaker) of the hybrid electric vehicle (HEV) as we know it today. Simply known as hybrids, Toyota has been in this game since 1997 with the Toyota Prius. While not the first outright hybrid to be developed (that title goes to the Lohner-Porsche racecar from the 1900s), the Prius paved the way to what Toyota has become in 2024–a hybrid tour de force.

By the early 2000s, the Prius even reached a point where owning one was considered trendy. Whether it’s due to the novelty of the technology, the perceived political and environmental correctness associated with owning one, or a combination of both, the Prius has become an icon in the automotive industry. In 2024, however, Toyota’s hybrid range has expanded way beyond the vehicle that pioneered the tech. As a result, its long-term commitment to hybrids that spans decades is paying off big time in 2024.

In order to give you the most up-to-date and accurate information possible, the data used to compile this article was sourced from various manufacturer websites and other authoritative sources, including Autoblog, Toyota, Lexus, Repairer Driven News, Cox Automotive, Kelley Blue Book, Washington Post, and iSeeCars.

America Has Spoken: We Want Hybrids

Toyota’s long-term commitment to hybrids is paying off big time in 2024. From Akio Toyoda’s “I told you so” moment last year when it came to electric vehicle (EV) sales, as well as its insistence to push for hybrids as part of a multi-solution approach as opposed to going all-in on electric vehicles, these are exactly the reasons why Toyota is the biggest automaker in the world by volume. By balancing what customers want versus what the current environmental situation demands, Toyota is experiencing a sales surge amidst a recent boom in hybrid popularity.

In recent months, especially as the end of 2023 drew nearer, hybrid vehicle sales growth began outpacing EV sales growth. Now in 2024, Toyota is laughing its way to the bank as it posts a massive 74.1 percent growth in electrified vehicle sales in the first quarter of 2024. When we mean electrified, we mean vehicles with varying forms of electrification, from hybrids to EVs, as well as hydrogen fuel cell electric vehicles (FCEV).

Specifically, 206,850 electrified Toyota (and Lexus) vehicles were sold in the first quarter of 2024, which is 36.6 percent of its total sales volume versus 25.3 percent in 2023, but let’s take a look at the breakdown between the two brands.

Massive Growth For Toyota

For the first quarter of 2024, Toyota sold 177,778 electrified vehicles, a massive 76.4 percent growth. Posting triple-digit sales increases for the quarter were the Prius, Crown, (both sold solely as hybrids), and the hybrid versions of the RAV4 and Camry. Sales of the bZ4X electric crossover SUV also grew by 11.7 percent in the first quarter of 2024–not as high as its hybrids, but still good enough for what is essentially not a core electrified product of Toyota. Even more impressive is the fact that numerous hybrid models also experienced their best-ever quarterly sales, and this included the humble and affordable Toyota Corolla Hybrid.

All-Time Best-Ever Quarterly Sales

• Corolla Hybrid
• Crown
• RAV4 Hybrid
• RAV4 Prime (PHEV)
• Tundra Hybrid

Even Luxury Buyers Want Hybrids

Moving on to Toyota’s luxury brand Lexus, the luxury brand sold 78,471 luxury vehicles in the first quarter of 2024–a growth of 15 percent. However, its electrified vehicle sales grew even faster by 61.1 percent to 29,072 units. This means that the share of Lexus electrified vehicles relative to its overall sales is now at 37 percent versus 26.4 percent in the same period last year. Don’t be fooled, however, by the sales figures of the RZ electric luxury crossover. While it may seem impressive on paper as it grew by a massive 766.5 percent, that’s because its sales in the same quarter last year were at a measly 185 units.

Nevertheless, leading the charge in the luxury brand’s electrified vehicle sales are the hybrid versions of the ES, NX, RX, and LS, while the NX plug-in hybrid also experienced double-digit sales growth. Also, noteworthy are the sales figures of these vehicles, which also experienced their best-ever quarterly sales figures.

All-Time Best-Ever Quarterly Sales

• NX Hybrid
• NX PHEV
• RX Hybrid

Why Hybrid Sales Are Booming

As EV sales growth has slowed, hybrid sales have boomed. Ford has cut back on F-150 Lightning production in favor of its PowerBoost hybrid versions. Why the American consumer has fallen in love with hybrids versus EVs is due to multiple reasons, most of which are very simple to understand.

Hybrids Don’t Require A Lifestyle Change

EVs not only require you to own a charger at home or even plan a trip that takes into account such a contraption, but you also have to deal with numerous inconsistencies when it comes to payments and how to operate a charger. Yes, charging continues to be the biggest hurdle among would-be EV owners, but more so is the lifestyle change that inevitably happens when you own one. With a hybrid, there’s absolutely no lifestyle change to make, whilst having a ton of benefits without even the need to adjust. How does more than 50 MPG with a Camry Hybrid sound, even with only around $2,000 separating the hybrid and non-hybrid models?

Yes, that’s the beauty of a hybrid, because the price jump between the hybrid and non-hybrid version is often so minuscule (especially if you opt for financing), the massive fuel economy benefits you experience can and will eventually earn back that price premium you paid by going the hybrid route. Since you don’t have to think about anything with a hybrid, combined with decades of experience that have made a Toyota and Lexus hybrid bulletproof reliable at this point, this has led to another reason why hybrids are so popular these days.

Hybrids Also Currently Have The Best Resale Values

Thanks to all of these factors, hybrids are also currently enjoying the industry’s best resale values. Don’t even get us started with EV resale values, since their rapidly evolving tech and long-term battery concerns also make them susceptible to harsh depreciation. Also unsurprising is that hybrids with the best resale values are dominated by Toyota, as you’ll see in this table.

(Data sourced from iSeeCars)

It’s Not Just The Customers That Love Toyota’s Hybrids

It’s all well and good for an automaker to sell as many vehicles as possible, but just as important in an automaker’s portfolio is its dealer network. After all, what’s the point of selling so many vehicles if this comes at the expense of a dealer’s margins, either due to incentives, discounts, high inventory, or a combination of all of these factors? Thankfully, what Toyota has done here is not just to make its customers happy, but also to provide a sustainable and profitable business case for the very people that sell these vehicles.

Dealers Also Love Toyota And Lexus

Cox Automotive reports that Toyota has come to a point where it already has a vast amount of trust with its dealer partners. This is due to how Toyota develops a business plan that will always put both itself and the dealer in a win-win situation. It’s a relationship that you’ll realize is surprisingly rare in the automotive industry. An example of this is how Toyota plans its production output based on its monthly production ordering process. Normally, automakers would produce vehicles based on their own gross margins only, but Toyota collects input from dealers to help decide what gets produced and shipped. Ever heard of Toyota’s just-in-time production? This is exactly it.

Because of this, it’s rare for a Toyota dealer or even the brand itself to have a high amount of inventory, thus lessening or eliminating the need to offer incentives to push for a certain vehicle. Along with other sustainable business relationships with dealers, it’s no surprise that Lexus and Toyota are the top 2 brands in the 2023 NADA Dealer Attitude survey. The Kerrigan Report also revealed that 72 percent of Toyota dealers have the highest trust rating for the automaker they’re working with, which is more than triple the industry average of 20 percent.

Toyota And Lexus Dealers Also Have The Highest Gross Margins

And of course, money indeed makes the world go round. In this case, it’s a business case that’s sustainable thanks to those above-mentioned factors, along with having a diverse vehicle portfolio and high customer loyalty. But how much does this translate into the bottom line of dealers? Very high, it seems.

Going back to the Cox Automotive report, while Toyota and Lexus only have a combined dealer network of just 9 percent of the nation’s total automotive dealerships, this small fraction of dealers accounted for more than a quarter of the industry’s total new car gross margins in February at 29 percent. This explains why, according to Haig Partners, the blue sky valuation of an average Lexus dealer is at 8-10x earnings, while Toyota’s is at 7-8x earnings, both the best in class for luxury and non-luxury franchises. It’s no wonder that when dealers are happy, this leads to excellent customer service. This likewise translates to high customer satisfaction, which unsurprisingly made Toyota have the highest brand loyalty in 2023.