Fuel prices soaring: Honda, Toyota bank on hybrid vehicles to draw in cost-conscious buyers

Their approach is in sharp contrast with that of other carmakers betting big on EVs.

Maruti Suzuki, Toyota Kirloskar and Honda Cars India are banking on hybrids as a critical “bridge strategy” before Indian consumers migrate to complete electrification. These hybrid vehicles may come at a premium of 15-20% over conventional petrol cars, but may deliver 35-40% better fuel efficiency than petrol.

In FY-23, there will be a hybrid City sedan from Honda and hybrid SUVs from both Maruti Suzuki and Toyota Kirloskar.

Japanese carmakers believe that introducing hybrids will eventually lead to higher localisation of parts for electric vehicles and make them more accessible to a larger customer base.

To be sure, Toyota, Suzuki and Honda are likely to offer hybrid vehicles, which may offer almost 35-40% better fuel efficiency over conventional petrol vehicles amid rising fuel prices.

Explaining the rationale, Honda Cars India’s newly appointed president Takuya Tsumura told ET that hybrid is the first reasonable step as it is the “most reachable or even the most practical model.”

“With hybrids, we give more opportunity to users to drive stress free, (there is) no need to consider we don’t have the charging station next 50 kilometers or something. It’s really one of the good solutions at this time. But, of course, again our future direction we already know. So when the time comes we need to, of course, introduce the EV,” he added.

Globally, Honda Motor has announced an investment of $40 billion with plans of launching 30 new electric vehicles by the end of the decade as it aims to achieve net zero emission by 2050. It hopes to produce two million electric vehicles annually by 2030.

Since the ecosystem for EVs is yet to come up in India, Tsumura feels hybrids are good solutions to reduce fuel consumption and cut down emissions.

“It (City eHEV) is actually 40-45% better than the petrol model. You can feel I’m saving something now, especially with such high fuel prices,” he said.

Honda will have a solitary alternative on hybrid in the foreseeable future. The bigger play on hybrids will come from Toyota-Suzuki combined in India. The much awaited mid-size SUV from the world’s largest car maker in the country is expected to come with a localized hybrid solution.

Toyota Kirloskar Motor Vice-chairman Vikram Kirloskar said in a country where 70% of the power is generated by coal-fired plants, “strong hybrids give the least amount of well-to-wheel carbon emissions”. “We will continue pushing hybrids. As this 70% starts coming down and more renewable energy starts coming in, we will start seeing more and more EVs (electric vehicles). Our objective is overall carbon reduction,” Kirloskar told ET recently.

Kirloskar said the vehicle architecture on the electrified vehicles – whether the hybrid, plug-in hybrid, or electric – is essentially the same. “They have a lot of common components and we are trying to see what is best for each country. In a country like Norway where it is 100% hydro power, electric vehicles make a lot of sense. I think we have to look at that,” he said,

The steep levies imposed on hybrid vehicles remain a concern and may put the vehicles out of reach of buyers in the mass market. On hybrids, India currently levies GST of 28% on small vehicles (of under four metres) and 43% on larger ones.

According to industry experts – the passenger vehicle segment will be probably the last to have a significant adoption of EVs – due to steep cost difference for EVs and demands for a resilient power grid to supply a source of energy to millions of cars eventually.

Even in a best case scenario, at 30% EV penetration, the impact the fuel bill imports on the cars is expected to be very miniscule, added an industry expert.

R C Bhargava, chairman of Maruti Suzuki recently at an ETAuto event had said, in a country like India, where per capita incomes are a fraction of those in Europe and the US and coal is the major source of electricity, electric vehicles (EV) will not give the intended reduction in carbon emissions for the next 10-15 years and hence the alternative technologies like compressed natural gas (CNG), bio-CNG, ethanol, and hybrid vehicles must also be promoted

Proposing lower taxation for CNG and hybrid vehicles, he added, “If we just adopt whatever strategies they (US and Europe) are following, I don’t think we will be doing justice to what we need to do in India,”

All these Japanese OEMs – Toyota, Suzuki, Honda have no plans of launching an electric car before 2025 and are currently working on localisation of hybrid vehicle parts, which can eventually help in building economies of scale and bring down the cost.

While Tsumura said discussions are on with industry body Society of Indian Automobile Manufacturers (SIAM) to rally for a rationalisation in taxes on strong hybrid vehicles, Kirloskar said his company will make a representation to the government to cut levies once it brings mass market models later in the year.

“In SIAM, we have the opportunity to talk about that issue. The Parliament Committee (has) also suggested having a lower GST tax on hybrids because it has low initial cost and a better ROI. We are closely working with the federal government as well as regional governments to realize a better tax structure for everything,” added Kirloskar.