Green Car Market Expanding Rapidly

Our list of the 10 best green cars for 2013 provides a somewhat granular look at the market for hybrid and all-electric cars in the U.S. But a higher level look also indicates that the market is gaining ground, and perhaps more quickly than most people think.

Green car sales rose nearly 41% year-over-year in 2012 according to a report from Experian Automotive cited at greencarreports.com. Of the more than 15 million cars sold in the U.S. last year, 3.1% were green compared with 2.2% in 2011. That’s nearly half a million hybrids and all-electric cars.

Okay, so that isn’t very many. But it’s making a difference in the amount of oil we burn for transportation fuel and it will make a bigger difference as the years go by. The following chart from the U.S. Energy Information Administration’s 2013 Annual Energy Outlook indicates that by 2025 more than 7 million alternative-fuel vehicles will be sold annually in the U.S. The EIA expects 9% of all light-duty vehicles sold in 2040 to be either hybrids or all-electric. Given the rapid rise in sales in 2012, that forecast may be too conservative.

What difference does that make? In 2006, the EIA forecast that U.S. consumption of gasoline and diesel fuel would reach 17 million barrels a day by 2025. A new forecast now indicates that consumption is likely to reach just 10 million barrels a day, 43% less than the earlier estimate. Hybrid and electric cars don’t make up all that difference, of course, but they do punch above their weight.

Energy economist Philip Verleger points out in his latest weekly newsletter that new car sales people are telling customers that purchasing a new, fuel-efficient car at currently low interest rates can sharply cut their monthly variable expense for fuel by raising slightly their fixed monthly payments. This is a powerful message for cash-strapped consumers and it helps sales not only of green cars, but also of new, more fuel-efficient gasoline and diesel models.

Changing U.S. auto buying and driving habits will take time, but in the dozen or so years since its introduction, the Prius hybrid from Toyota Motor Corp. (NYSE: TM) has become the best selling car in California. Green cars are not likely ever to become the best selling cars in the U.S., but their sales will increase and likely even faster than new EIA projections.