Despite growing energy security and environmental concerns about dependence on oil as a transportation fuel, gasoline remains the overwhelmingly dominant fuel used by the US automotive fleet. Numerous previous efforts to introduce alternative fuel vehicles (AFVs) fueled by hydrogen, biofuels and electricity have failed, and significant barriers to a rapid transition to AFVs remain. One technology that has achieved considerable success in the US is the gasoline hybrid-electric vehicle (HEV), which integrate gasoline and electric powertrain components to significantly improve the efficiency of gasoline use. Since their introduction in 1999, over 2 million HEVs have been sold in the US, with more than 30 HEV models available to consumers today. In this dissertation I explore the dynamics of adoption of HEVs, examining factors influencing consumer adoption of HEVs to date, and, looking forward, the role of HEVs in the emerging market for plug-in electric vehicles (EVs). In Essay 1, I examine the market for the iconic Toyota Prius HEV. While more than 1 million Prius vehicles have been sold in the US, this market has been characterized by long wait lists at Toyota dealerships, evidence of supply constraints influencing the diffusion process. The innovation diffusion literature says relatively little about supply constraints, representing diffusion as a fundamentally demand-side process. Here I develop a model of innovation diffusion that incorporates production capacity and dealer inventory. Inclusion of supply constraints improves the explanatory power of the model in the Prius case, and demonstrates that the failure to model supply constraints can bias diffusion model parameter estimates. Essay 2 is motivated by the observation that Prius sales are not uniform geographically. Sales of the Prius have clustered in regions such as the West Coast, around Washington DC and through New England, with many fewer sales of the Prius in the south and mid-west. I propose two alternative hypotheses to explain the emergence of these clusters: 1) contagion through consumers' social networks; and 2) market heterogeneity that influences consumers' adoption thresholds. I develop a model of spatial innovation diffusion that captures spatial information generation between regions and consumer discrete choice between technologies. I find that in the Prius case, adoption clustering is explained by social contagion at the local level, which amplifies heterogeneous adoption thresholds. In Essay 3, I explore the future role of HEVs as a transitional technology in the emerging market for plug-in EVs, which hold the potential to achieve deep cuts in oil consumption and greenhouse gas emissions. The technology strategy literature suggests that hybrids technologies help the transition to radical technologies, accumulating producer learning, consumer familiarity and complementary assets that spillover to the radical technology. However, EVs remain expensive, have a limited electric range and lack a ubiquitous recharging infrastructure, while HEVs are relatively cheaper and refuel from the existing gasoline refueling infrastructure. I develop a model of hybrid and electric vehicle diffusion with multiple competing entrants, finding that the smooth transition from HEVs to EVs is possible but not assured, identifying public policy and firm strategy decisions that have the potential to accelerate this transition.