The data provide strong evidence that a combination of economic and social incentives may be most effective in successfully introducing these vehicles.

—Richard Curtin, director of the Reuters/University of Michigan Survey of Consumers

Distribution of purchase probabilities at different price points. Source: Curtin et al. (2009) Click to enlarge.

The purpose of this study was to examine the conditions under which consumers would purchase a PHEV. Rather than focus on “first adopters,” the research focused on the potential pool of purchasers in the first several years after the introduction of PHEVs.

Consumers were asked to consider two key factors: the savings achievable on fuel costs and the added cost premium to purchase the vehicle. The questions were based on estimates of the likely fuel savings and cost premiums for the PHEVs in five to ten years (in today’s dollars). The costs premiums were $2,500, $5,000, and $10,000; and the fuel savings was estimated at 75% compared with a conventional gasoline engine.

• When given no cost or fuel-savings estimates, 42% of those surveyed said there was at least some chance that they would buy a PHEV sometime in the future.

• Under the three different cost scenarios, the probability of purchase fell by 16 percentage points with each successive doubling of the price of PHEVs:

  • 46% said there was a chance of purchase at $2,500 more;
  • 30% said there was a chance of purchase at $5,000 more; and
  • 14% said there was a chance of purchase at $10,000 more.

The relationship between cost and purchase probabilities was clearly indicated by the proportions who said there was zero chance of buying or 100% chance of buying at the three different cost premiums presented.

Indeed, 56% of all consumers responded that there was no chance that they would buy a PHEV at the top premium. The proportion indicating a zero probability of purchase moves from nearly one-in-four at $2,500 to one-in-three at $5,000, to more than one-in-two at an added cost of $10,000. At the other extreme, those who said they were 100% certain that they would buy a PHEV reached a high of just 10% for the lowest added cost and fell to just 1% for the highest added cost.

—Richard Curtin

The researchers also investigated three general sets of factors to gain a better understanding of how consumers judged the potential purchase of a plug-in hybrid electric vehicle.

• The characteristics of the vehicle that consumers currently own and how the vehicles were driven, determining the cost implications of vehicle purchase decisions.

• The socio-economic characteristics of the household, its geographic location, and recharging capabilities.

• Environmental and other non-economic attitudes that may be related to preferences for hybrid vehicles.

It should be no surprise that vehicle purchases,typically the second largest purchase households make, would be very sensitive to price, Curtin says. But although consumer acceptance of PHEVs was not determined solely by cost issues, the role of environmental considerations played a smaller role in consumer attitudes about PHEVs than had been anticipated.

Half of all consumer reported that showing a committment to the environment through the purchase of a PHEV was “very important” to them. This kind of over demonstration of a commitment to buying environmentally friendly products —known as badging—has long been recognized as a powerful influence on purchases of many different green products, Curtin says.

But when asked what they through was the main advantage of a PHEV—reducing money spent on fuel, reducing vehicle emissions or reducing dependence on foreign oil—54% reported that reducing dependence on foreign oil was the main advantage.

Reducing vehicle emissions was by far the least frequently cited advantage. Just 15% of all consumers cited that as the main advantage.

—Richard Curtin

Only 31% thought reducing money spent on fuel was the main advantage, even though the price of gas was high during the time the survey was conducted. When the survey started in July 2008, gas prices were near their all-time peak ($4.28 per gallon) and then fell sharply during the period of data collection. But the researchers found no relationship between PHEV purchase probabilities and the price of gas.

The data provide strong evidence that a combination of economic and social incentives may be most effective for the successful introduction of PHEVs. The survey also sowed the significant influence of hybrid vehicles in signalling people’s commitment to a clean environment.

Nonetheless, consumer attitudes toward the environment are less compelling than economic criteria in explaining hybrid purchase probabilities. Presumably, if PHEVs are priced so that consumers can recoup their initial investments over a reasonable time period, consumers would find ample economic justification for their purchase. The critical role of environmental and other on-economic attitudes may be to provide the initial burst of interests and sales to propel the appeal of PHEVs to the mass market.

—Richard Curtin

The analysis also examined how vehicle usage patterns and currently owned vehicle choices, as well as demographic characteristics such as age, income, education and gender, are connected to preferences for PHEVs. Additional correlates of purchase probabilities,s including location and availability of outlets for recharging, and preferences for news technologies,are also analyzed in the report.

...the long term success of these vehicles in the marketplace will depend on whether this technology can provide a higher value to consumers when compared with alternative technologies. Providing greater consumer value includes the reliability, durability, and convenience of the new technology as well as fuel savings and the purchase price of the vehicle. These are complex judgments that cannot be fully captured in population surveys before the vehicles have been actually produced.

The data provide strong evidence that a combination of economic and social incentives may be the most effective for the successful introduction of PHEVs. Indeed, social forces play an important role in most purchases, including vehicles. The survey documented the significant influence of hybrid vehicles in signaling people’s commitment to a clean environment. Nonetheless, the importance of the attitudes toward the environment in explaining hybrid purchase probabilities provides less compelling evidence of the underlying demand than if preferences for hybrids were mostly based on economic criteria. The presumption is that following the introduction of PHEVs, if the vehicle is priced so that consumers can recoup their initial investments over a reasonable time period, consumers would find ample economic justification for the purchase of a PHEV. The critical role of environmental and other non]economic attitudes is to provide the initial burst of interest and sales to propel PHEV’s appeal to the mass market.

—Curtin et al.

The study was supported by funds from the Pacific Northwest national Laboratory and the U-M Transportation Research Institute (UMTRI).

Resources

• Surveys of Consumers. Richard Curtin, Yevgeny Shrago, and Jamie Mikkelsen (2009)Plug-in Hybrid Electric Vehicles