J.D. Power more bullish on hybrids?

In the past J.D. Power's Anthony Pratt, has been pretty bearish regarding hybrid cars, but a new study by J.D. Power suggests that hybrid and diesel sales "will more than double" in the next seven years, coveting 11% of the market.

While Pratt has tried to save face, arguing that diesels will be the biggest movers, he had to add, "Outside of meeting future emission standards," Pratt said, "the biggest challenge for automakers concerning diesel technology will be convincing consumers that today's diesel engines have increased performance and run cleaner and quieter than previous-generation diesels."

Quite simply, the largest automarkets in America have very tough regulations regarding diesel, and if oil stays high, diesel engines will remain insignificant.

While there be 44 hybrid models by then according to the Power study, Pratt still claims that hybrid success will be hinged upon reducing costs. Much has been made of reducing hybrid costs, but future American hybrids are going to be built in America, including the Toyota Prius, the Camry hybrid, the Highlander hybrid and many more.

More important, the technology behind hybrids, particularly the NiMH battery, is going to be built in America. Recently, Gene Marcial, of BusinessWeek's Inside Wall Street advocated buying stock in Energy Conversion Devices (ENER) because of the soaring demand for hybrid vehicles.

Local production and battery competition should drive down not only prices, but also increase the power and efficiency of hybrid batteries - providing faster yet more fuel efficient vehicles.

Ultimately, it will probably come down to oil prices. While there are still many oil bears out there, the geopolitical politics behind oil guarantee that America is in for a roller-coaster ride when it comes to gasoline prices. Additionally, a few strong winters and/or hurricane seasons could easily cause significant problems as well.

If gasoline hits $3.00, both the environmental and the foreign oil issues behind hybrids will become irrelevant. Tax incentives and high gasoline prices will simply make hybrids more cost-effective than conventional vehicles.