Market Trends

The COVID-19 pandemic continued to affect the automotive market in 2021, albeit differently than in 2020. While demand may have been weak in 2020, it was supply that was weak in 2021, leading to low inventory and high prices. Analysts estimate that once sales are fully calculated, 14.9 million vehicles will have been sold in 2021, up from 14.5 million in 2020 but still down from the pre-COVID average of 17.3 million. Semiconductor chips, increasingly critical to run the vehicles’ infotainment systems as well as calibrate fuel injection, are in short supply globally, hampering the overall supply chain and vehicle production. Some automakers have weathered these inventory and supply issues better than others, with some pulling certain features and some prioritizing chips for more in-demand or more profitable vehicles. Toyota managed its inventory better than most and became the best-selling automaker in the United States for the first time ever, unseating GM. 

Policy developments will also have an impact on the automotive industry. The two biggest were the Biden administration’s goal for 50% of all new passenger vehicles to be electric by 2030 and its new emissions and fuel-efficiency standards. The standards in particular have the potential to significantly reduce vehicle emissions and save consumers money if implemented properly. The electric vehicle (EV) goal, if realized, could alter the automotive industry and solidify the transition to greater electrification already underway. Congress also passed its bipartisan infrastructure bill, which included $7.5 billion for EV and alternative fuel vehicle charging, both of which will support this transition. 

Electric Vehicles

While 2021 saw new EV models and a near doubling of new electric vehicle sales, EVs still represent less than 3% of total passenger vehicle sales. Sales are, however, poised to take off in the coming years as automakers continue to announce new EV models and the big three Detroit automakers set aspirational goals of 40%–50% of new sales being electric by 2030. Toyota, which has been a laggard on fully electric vehicles and has actively campaigned against more-stringent fuel economy standards, announced that it was upping its plan to offer 15 new EV models (which includes plug-in hybrids) by 2025 to 30 by 2030. Toyota also pledged to sell 3.5 million battery electric vehicles globally by 2030, make its Lexus brand all electric by 2035, and invest $17.6 billion in battery vehicle technology. 

Tesla continues to take first place in EV sales, representing 69% of full battery electric vehicles sold in 2021; the Model Y and Model 3 were the first- and second-best-selling EVs. Other top sellers include the Chevy Bolt EV/EUV, Ford Mustang Mach-E, and compact vehicles like the Nissan Leaf and Kia Niro. Despite many announcements of larger EVs, most of the biggest sellers continue to be compact vehicles and sedans that have been available for years. That does not mean that automakers don’t plan to offer larger EVs. Coming off GM’s announcement of the electric Hummer last year, Chevrolet announced an electric version of its Silverado pickup, to be expected by 2023. Ford also announced in 2021 that it will produce an electric version of its Explorer SUV.

Luxury automotive brands continue their trend of increasing their EV offerings, with many planning full electrification sooner than the major consumer brands. This may be due to stiff competition in the luxury market from Tesla, which is now the third-best-selling luxury automaker after BMW and Lexus and the fastest growing in 2021 by far. Registrations of Tesla vehicles were up 68%; the next fastest, BMW, grew at 32%. Mercedes-Benz plans for all new-vehicle platforms to be all electric by 2025 and all new sales by 2030; Jaguar plans to be all electric by 2025; and Rolls-Royce and Bentley are both aiming to be all electric by 2030. Volvo also plans on full electrification by 2030 and has a full plug-in electric luxury brand, Polestar. 

Also entering the luxury electric space is Lucid motors, whose Lucid Air was named Motor Trend’s 2022 Car of the Year and can max out at 520 miles of range. The automaker says this considerable range is in part due to its focus on making the vehicle energy efficient and optimizing range without increasing the size of the battery pack (batteries account for a major share of the environmental impact of all-electric vehicles). Lucid’s most efficient model, the Air Grand Touring, has a range of 516 miles and an efficiency of 131 MPG-equivalent (the Tesla Model S, for comparison, has an efficiency of 115 MPG-equivalent). The vehicle’s heavy battery is a major contributor to its environmental impact.

Critical to the mass production of EVs is the mass production of the batteries that fuel them. The combination of lofty EV goals and pandemic-induced supply strains has led to automakers increasing their investments in localized battery production. Whereas previously only Tesla had a major battery manufacturing presence in the United States, now other automakers are spending billions and partnering with global battery giants like LG Chem and Panasonic to build domestic battery factories. To stay one step ahead of competitors and minimize production disruptions, Tesla is increasingly securing its mineral supply chain as well. These investments have the potential to support the proliferation of EVs and allow automakers to meet the growing demand with actual inventory on their lots. 

Internal Combustion Engines

While there is significant innovation and investment in electric vehicles, automakers are also making advances in gasoline-powered internal combustion engine vehicles, which still account for the overwhelming majority of new vehicle sales each year. Given that most Americans will be buying and driving gasoline-powered vehicles for the foreseeable future and that gasoline prices can rise and fall rapidly, as we’ve seen this past year, improved fuel economy can certainly benefit a household’s bottom line. 

Overall, the efficiency of new vehicles has improved over the last five years but at a relatively slow rate. However, the market shift toward larger vehicles, due to consumer preferences and greater profitability for automakers, has counteracted fuel-efficiency-enhancing technologies, ultimately limiting progress in reducing fuel use. Vehicles may be getting more efficient compared to similarly sized vehicles of past years, but as Americans trade in their sedans for crossovers, overall efficiency suffers. The structure of federal efficiency standards also contributes to this phenomenon.

Automakers are now using turbochargers in 35% of new vehicles, up from 5%–10% a decade ago. Turbocharged engines are highly powerful even at small sizes, allowing vehicles to be more efficient when not requiring significant horsepower. For example, the 2022 Nissan Rogue has been updated to include a turbocharged (and variable compression) three-cylinder engine, which increased its horsepower 11% but also increased its fuel economy by 3 miles per gallon to 33 mpg. Other examples include the Acura MDX, the Hyundai Santa Cruz, and the Lexus LX. While some have claimed that the fuel-efficiency advantages of turbocharged engines only exist on paper, there is evidence that these engines can be beneficial, especially in highway driving. 

Vehicle electrification is not an all-or-nothing option: vehicles with internal combustion engines are increasingly using start-stop technology and hybridization. Sales of hybrid vehicles soared in 2021, growing 142% in the first six months of the year. Hybrids have become even harder to find at dealerships than conventional vehicles as buyers appreciate their superior fuel efficiency, familiarity, and freedom from the potential charging difficulties of fully electric vehicles. 

Recognizing this demand, automakers have been offering hybrid versions of more of their vehicles, especially their best-sellers. For example, Hyundai now offers a hybrid version of both the Santa Fe and the Elantra. The Hyundai Elantra, for example, gets an additional 15 mpg in its hybrid version, nearly doubling fuel savings in the first five years compared to the average new vehicle according to EPA. 

Start-stop technology is another way automakers are boosting fuel economy in conventional vehicles. This feature, which saves fuel by enabling the engine to automatically turn off when idling, was barely used a decade ago but now appears in almost half of all new vehicles. However, like so many other technologies, start-stop relies on advanced microchips that have been hard to come by in the past year. GM reported that it was removing start-stop from many of its new vehicles because of the chip shortage, affecting many of its large and popular options like the Chevy Suburban and Silverado 1500. GM has also had to exclude another similar fuel-saving technology—cylinder deactivation—from many of its vehicles because of the chip shortage. This technology allows the vehicle to run on fewer cylinders when the full-sized engine is not needed, which is especially beneficial for the large trucks and SUVs GM is known for.

Greener Choices for Everyone

When it comes to buying a new vehicle, the most environmentally friendly step is simple: evaluate your needs and your budget, then look for suitable models with the highest green scores. Even though our top 2022 ratings go to vehicles with some form of electrification, all vehicle classes feature nationally available gasoline-powered vehicles that score significantly better than average.

Our Greener Choices table highlights top-scoring vehicles available to everyone in almost all major market segments. The list includes only automatics. In the past, manual transmission versions of vehicles on the Greener Choices list often had higher fuel economy, but this is less common today thanks to advances in continuously variable and automatic transmissions. The good news: you can find cleaner and more-efficient vehicles throughout the market. The database lists hundreds of vehicles beyond those listed in this table.

Buying green does more than fulfill your own personal commitment to reducing pollution and protecting the environment. It sends a signal to manufacturers. As more consumers buy green, automakers will increasingly view environmentally friendly design as a market opportunity rather than an obligation. They will be motivated to invest more in better technology, leading to more green vehicles in the years ahead. Automakers are increasing their commitments to electrification and we should continue to see a greater variety of EVs in the coming years. 

Keep in mind that the average car or light truck runs for 15 years—or more—thanks to increasing vehicle durability. Even if you don’t keep your new vehicle for more than a few of those years, the choice you make now will expand the options available to used-car buyers in the future. So instead of putting another gas guzzler on the streets, the greener choice you make today can help cut pollution for years to come.