The demand of hybrid cars

Based on the article from TheStar dated on 30 December 2010, the demand of hybrid cars is rising. Demand is what consumers are willing and able to pay, because of having the cheapest hybrid price at RM98000.An analyst from a local research house said that Honda Insight is not only cheaper but also offers good fuel economy as well. A Civic Hybrid costs RM129000; Toyota Prius is falls from RM175000 to RM139900 for each. Quoted from the article in The Star, the research auto analyst thinks that the rise in demand for the Insight would influence the sales of vehicles like Toyota Vios and Honda City because people would not mind forking out a bit more money to buy a hybrid. On the other hand, the sales of Perodua vehicles wouldn’t be influenced as these cars are much cheaper. They are still having the highest demands comparing to others imported vehicles.

The sales of Honda Insight which costs RM98000 for each are better than Toyota Prius. As Insight is having a cheaper price, Prius is more expensive than Insight. According to the law of demand, when other things remaining the same, the lower the price of a good, and the larger is the quantity demanded. Prius and Insight are similar type (as they are both hybrid cars), consumers will logically buy the car with the lower price. This called substitution effect.

Consumers usually consider everything before purchasing a car, including fuel saving. Honda Insight is not only cheaper but also offers good fuel economy as well. Insight has a very good sale as it is hybrid car. A hybrid car has two motors, the general petrol-powered and electric motor. This type of car is fuel efficient as it can switch between battery and petrol when in need. The two motors provide extra boost using a battery that is rechargeable. Thus, the demand of Insight will increase. Furthermore, the demand of Insight is also based on the prices of related goods. In this case, fuel is a complement of car as it is used in conjunction with the car. Nowadays, fuel is getting more expensive; Ron 95 is RM1.90 per litre, and Ron 97 is RM3 per litre. So, with this, I can say that the demand for the hybrid car will increase.

Price of Prius falls from RM175000 to RM139900 for each. It was cut down around RM35000 and now, the price of Prius and Civic are more or less the same. According to the law of demand, the lower the price of a good, the larger is the quantity demanded, when other things remaining the same. The consumers who are able to buy Prius (quantity demanded) will increase when the price cut down around RM35000. This is proven when the sales of Prius increase by 250 units as of November 2010. Hence, I can conclude that when price cut down, sales will increase.

Maghfur, the research auto analyst of OSK, thinks that the rise in demand of Insight would influence the sales of vehicles such as Toyota Vios and Honda City. Demand can be defined as you demand something, you want it or can afford it or have made a definite plan to buy. “Wants” are the unlimited desires or wishes people have for goods and service. “Demand” reflects a decision about which wants to satisfy. Demand is affected by preferences. Consumers will only buy what they wish to buy. So, I agree with Maghfur that the sales of Toyota Vios and Honda City would be slightly influenced when the demand of Insight rises.

Maghfur also said that “people would not mind forking out a bit more money to buy a Hybrid’. As the price of Toyota Vios and Honda City is within RM70783 to RM90819 (include road tax and insurance), especially Honda City which price starts from RM85840. The difference between the price of Honda Insight and two other cars is only between RM7000 and RM 18000. Mathematically, you will spend RM7000 to RM18000 more if you buy Honda Insight. So, the opportunity cost, which is the highest-valued alternative that must be give up to get it is Toyota Vios or Honda City. In addition to that, in long term, compared to petrol-based cars, consumers would actually “earn back” the money spend on fuel as hybrid cars as I mentioned above can switch between the two engines. Therefore, consumers are willing to spend more money to buy a Hybrid. He also thinks that sales of Perodua vehicles wouldn’t be influenced as these cars are much cheaper. A lower cost of vehicles will be more affordable to population if compare with a higher cost of vehicles. Therefore, most people are willing to buy the lower price rather than the higher price of vehicles. In other words, Perodua vehicles are still having the highest demands comparing to others imported vehicles. This is very obvious because many Perodua vehicles can be seen along the roads and highway when you are driving.  

In conclusion, the quantity demand of hybrid cars will be affected by the price of hybrid cars. The quantity demand of a type of cars will be affected by the lower price of the similar type of cars. Price of complement will affect the demand for all the cars. People will also buy the cars which they like, although the cars cost higher than others.