General Motors and Volkswagen are no longer manufacturing hybrid cars for the US market (GM, VWAPY)

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GM and Volkswagen (VW) will no longer manufacture hybrid cars for the US market, according to the Wall Street Journal. The automotive giants will instead invest in manufacturing electric vehicles (EVs) while they continue to produce gasoline vehicles to meet the bulk of near-term demand in the US. GM intends to launch a global fleet of 20 fully electric vehicles in the next four years.

Meanwhile, VW — coming off a failed attempt to popularize diesel-powered vehicles — committed billions of dollars to investments for its lineup of EVs, some of which will launch in the US next year.

By leapfrogging what they see as transitional fueling technology, GM and VW are gambling on the speed at which the US market will adopt EVs. VW’s US chief Scott Keogh said the move allows them to "go all-in where the market is heading, as opposed to hybrids as a way to hedge our bets."

One of the biggest reasons VW and GM likely believe this gamble will pay off is dropping global production costs, which, in turn, should help drive up adoption, even in the US where EVs represent a small share of sales. In 2018, 3% of new vehicle sales were hybrid vehicles, while just 1% were fully electric vehicles, according to LMC Automotive cited by the Wall Street Journal

The adoption of EVs in Europe and China should drive global production costs down, leading to cheaper vehicles in the US. Governments in Europe and China have pushed for more aggressive adoption of EVs. The two regions currently contain an estimated 67% of the global EV fleet, according to the International Energy Agency.

In response to the massive EV growth in these markets, suppliers have hastened the shift toward production of EV components. For instance, we reported last week that Continental — the world’s third-largest automotive supplier — will divert investments in traditional engine components to instead go toward EV components.

Such shifts in production from major suppliers should translate to reduced costs for mass production of EVs. More than half (57%) of US consumers said that they would be more likely to purchase an EV if it were the same price as a traditional vehicle, according to a survey conducted by The Harris Poll on behalf of Volvo Cars.

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