Pure vs. hybrid EV makers: What does it take to win the race?

The global automotive industry is undergoing a tectonic shift as environmental concerns, technological improvements, and regulatory pressures power the drift toward sustainable mobility. This revolution is led by two categories of players: Pure Electric Vehicle (PEV) makers, who make only battery-powered automobiles; and Hybrid EV (HEV) makers, who make both internal combustion engine (ICE) and battery-powered vehicles or vehicles with a dual power source such as ICE and Battery. Pure EV makers, such as Tesla and Rivian, are creating benchmarks for innovation and sustainability, while hybrid producers like Toyota and Ford leverage their legacy infrastructure and supplier ecosystem to ease the transition.

International EV sales reached 10.5 million units in 2022, which is 55% more than 2021, with natural EVs accounting for 72% of those sales [Global Electric Vehicle Outlook (2023, p.2,  Bloomberg NEF)]. As the competition heats up, the debate centers on which organizations are in a position to dominate the future of mobility. This article explores the strengths and challenges of both types of makers along the dimensions of supply chain complexity, access to raw materials, manufacturing infrastructure, regulatory compliance, demand forecasting, inventory management, after-sales and service networks, innovation and R&D focus. It summarizes the strategies and innovations shaping the race toward greener mobility.

Supply chain complexity

Pure EV producers gain from streamlined supply chains tailored to battery manufacturing and electric powered components. Tesla, for example, has vertically integrated its operations with Gigafactories to secure a consistent delivery of lithium-ion batteries and different key substances. This vertical integration allows for higher control over design and deliveries. The geopolitical risks on account of reliance on Australia and Chile for lithium and the Democratic Republic of Congo for cobalt adds to the vulnerabilities to disruptions in the battery supply chain. Lithium demand for EV batteries is projected to increase tenfold by 2030. [Global Critical Minerals Outlook (2024, p. 125)]

On the other hand, hybrid producers juggle twin supply chains for ICE and EV components, adding layers of complexity. Toyota’s gradual EV transition strategy involves preserving ICE supply chains while ramping up battery production. This dual method spreads resources thin, frequently slowing innovation in electric-powered technologies. Balancing the call for conventional and emerging components continues to remain a critical decision throughout the transition.

Raw material procurement

Pure EV makers prioritize critical materials for battery manufacturing, adopting recycling initiatives to lessen reliance on mining. Tesla’s partnership with Redwood Materials exemplifies its awareness of sustainability and responsible resource consumption. These efforts not only mitigate negative environmental impact but also assist stable long-term access to key materials. Similarly, Rivian is also exploring partnerships to reinforce its sustainable sourcing practices. A McKinsey document suggests that recycled materials should contribute up to 15% of the worldwide lithium supply by 2030. [Battery Recycling takes the driver’s seat (2023, McKinsey & Company)]

Hybrid makers, perhaps in their early setup, in the endeavor to use common sourcing processes for both EV and ICE materials, develop inefficiencies and divided interest. This dilutes their commitment to preserve rare earth materials for EVs while keeping conventional procurement channels for metals like steel and aluminum required for ICE motors. This dual focus often complicates SCM and leads to additional operational costs.

Manufacturing infrastructure

Pure EV companies have centers optimized for EV production. Tesla’s Berlin Gigafactory, for instance, makes use of superior automation and “Giga Press” machines to consolidate automobile additives into single casts, reducing manufacturing costs and enhancing performance. Such process innovations allow pure EV makers to scale manufacturing rapidly while maintaining standards.

Hybrid manufacturers frequently retrofit present factories for dual manufacturing, which increases operational complexity and limits efficiency. Ford’s Rouge Complex, for example, helps each ICE car and EVs like the F-150 but faces challenging situations in adapting legacy systems to new technology. Retrofitting current infrastructure can help in saving initial costs but in the end often leads to sub-optimal production lines.

Regulatory compliance

Pure EV makers align without a problem with stringent emissions rules and benefit from authorities’ incentives like tax credits for zero-emission motors. Tesla, as an example, generates substantial revenue from carbon credit sales, earning over $1.5 billion in 2022. [Tesla’s carbon credit sales soared to $1.78 billion in 2022 (2023, DGB Group)]. These credits not only fortify its financial position but also publicize their sustainability efforts.

Hybrid manufacturers face dual compliance demanding situations, navigating both ICE and EV regulatory frameworks. Meeting stricter emissions requirements for ICE automobiles, which include the Euro 7 rules, at the same time transitioning to EV mandates increases costs and slows the transition to electrification. For example, Toyota must stabilize investments in its Prius line, while growing its EV services to meet the regulatory demands in future.

Demand forecasting and inventory management

Pure EV makers leverage advanced analytics and direct-to-user models to streamline inventory control and respond quickly to market fluctuations. Tesla’s real-time order tracking allows it to alter manufacturing schedules and stock ranges based on true consumer demand, minimizing waste and enhancing performance.

Hybrid manufacturers must deal with mixed-up demand signals for ICE and EV models in forecasting, leading to inefficiencies in production and stock management. Ford’s ramp-up of the Mustang Mach-E, as an example, created stock imbalances that impacted its ICE production and sales. Balancing production volumes between ICE and EV adds complexity to operations. Hybrid vehicle sales grew 32% in 2022, indicating strong demand but also requiring manufacturers to balance production volumes carefully. [Rapid Growth: Sales of Used Electric Vehicles Increase by 32% in Q1 (2023, Cox Automative)]

After-sales and service networks

Pure EV makers give attention to EV-precise service, like Tesla’s mobile service devices and over-the-air software updates, ensuring an experience that would satisfy the customer. These improvements lessen the need for physical facilities, improve the convenience of clients and reduce servicing expenses. On a different note, Rivian’s nationwide community of mobile service vans exemplifies a comparable method, bringing service to the client’s doorstep.

Hybrid producers face the dual challenge of preserving conventional service networks for ICE automobiles while developing new systems for EV servicing. Upgrading current centers and retraining technicians to deal with EV servicing needs, battery diagnostics and high-voltage systems, lead to higher operational expenses and complexity.

Innovation and R&D focus

Pure EV makers focus completely on EV technologies, accelerating improvements in battery efficiency, software, and self-sustaining usage. Tesla’s improvement of 4680 battery cells with higher power density and low cost demonstrates its leadership in battery innovation. Rivian’s software program-driven energy management systems highlight the significance of battery management in EVs. Global EV battery technology investment is projected to reach over $250 billion by 2030. [EV Battery Market worth $251.33 billion by 2030 (2025, MarketsandMarkets)]

Hybrid producers, however, divide assets between enhancing ICE performance and developing EV technologies. While Toyota is a pioneer in hybrid technology, its investments in solid-state batteries are restricted by need to balance ICE and EV priorities. This split of attention frequently results in slower development of electric-powered innovations.

Way forward

The race among pure EV and hybrid producers highlights the challenges and possibilities in the global transition to sustainable mobility. Pure EV makers, with their focus, are leading in innovation, efficiency, and regulatory alignment, positioning themselves as the front runners in the EV market. However, their reliance on rare minerals and mega infrastructure are some risks they need to cope with.

Hybrid manufacturers, while leveraging their legacy infrastructure and broader market reach, face the complexities of balancing twin supply chains, meeting various regulatory necessities, and coping with split investments in ICE and EV technologies. A slow transition approach gives short-term market benefits but is at risk of falling behind as worldwide regulations are more favorable to the EV production. Also, an increasing number of people are starting to prefer pure EV cars.

To navigate this competition, hybrid manufacturers can undertake numerous mitigating techniques. By retaining a twin approach, they could leverage present ICE technology while incrementally increasing EV services and decreasing economic risk. Decoupling EV and ICE supply chains can enhance innovation whilst optimizing operational performance and cost control. Additionally, investing in hydrogen fuel gives an alternative pathway, specifically for heavy-duty and long-haul applications, permitting hybrid manufacturers to bypass the temporary gains of PEVs.

Ultimately, the winner of this race might be determined through the capability to cope with supply chain vulnerabilities, including sustainability, and deliver solutions that are effective in price as well as deliver a good performance. As the EV marketplace evolves, collaboration, innovation, and strategic agility will be the defining elements shaping the future of mobility.

About the authors

Sai Teja V.V is an electrical and electronics engineer with an MBA with a specialization in operations and marketing. He is passionate about supply chain optimization, process efficiency, and strategic sourcing. He is keen on bridging the gap between fact-driven insights and industry’s best practices, by contributing to the evolving landscape of procurement and supply chain.

Dr. Kalyana C Chejarla teaches and writes on operations, digitalization and decision making at IMT, Hyderabad. He is an alumnus of IIM (L), IIM (A), IBS, and NIT (Jamshedpur). Prior to moving to academics, he worked with organizations such as Tata Motors, TCS, Dell etc., and was part of SCM transformation projects for clients worldwide.

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