Electric-drive vehicles, including hybrid electric vehicles, plug-in hybrid electric vehicles, battery electric vehicles, fuel cell electric vehicles and fuel cell hybrid electric vehicles, are emerging as less polluting alternatives to internal combustion engine vehicles. Therefore, it is important to assess their penetration in the vehicle market in the future. A ‘two-step’ approach is used to estimate the optimum market penetration of lightweight and electric-drive vehicles in the long-term and the impact on the light-duty vehicle fleet, focusing on Japan. First, an optimization model is used to estimate the vehicle market composition in 2050. Then, a vehicle stock turnover model is used to estimate light-duty vehicle fleet energy and material consumption, CO2 emissions and cost. Internal combustion engine vehicles and hybrid electric vehicles dominate in the Base scenario. Fuel cell hybrid electric vehicles dominate when low cost is prioritized. Shift to battery electric vehicles occurs when low CO2 emissions are prioritized. CO2 emissions are reduced 56.9% between 2012 and 2050 in the Base scenario. Lightweight mini-sized battery electric vehicle diffusion has the largest CO2 emissions reductions, 87.3% compared to the 2050 baseline value; with the net cash flow peaking at 10.2 billion USD/year in 2035 and becoming negative after 2044.