Hybrid electric vehicles (HEVs) offer great promise in improving fuel economy. In this paper, we analyze why, how, and by how much vehicle hybridization can reduce energy consumption and improve fuel economy. Our analysis focuses on efficiency gains associated solely with vehicle hybridization. We do not consider such other measures as vehicle weight reduction or air- and tire-resistance reduction, because such measures would also benefit conventional technology vehicles. The analysis starts with understanding the energy inefficiencies of light-duty vehicles associated with different operation modes in U.S. and Japanese urban and highway driving cycles, with the corresponding energy-saving potentials. The potential for fuel economy gains due to vehicle hybridization can be estimated almost exclusively on the basis of three elements: the reducibility of engine idling operation, the recoverability of braking energy losses, and the capability of improving engine load profiles to gain efficiency associated with specific HEV configurations and control strategies. Specifically, we evaluate the energy efficiencies and fuel economies of a baseline MY97 Corolla-like conventional vehicle (CV), a hypothetical Corolla-based minimal hybrid vehicle (MHV), and a MY98 Prius-like full hybrid vehicle (FHV). We then estimate energy benefits of both MHVs and FHVs over CVs on a performance-equivalent basis. We conclude that the energy benefits of hybridization vary not only with test cycles, but also with performance requirements. The hybrid benefits are greater for “Corolla (high) performance-equivalent” vehicles than for “Prius (low) performance-equivalent” vehicles. An increasing acceleration requirement would result in larger fuel economy benefits from vehicle hybridization.