What is On-Demand AWD and how does it work?

Popularity of all-wheel drive or 4-wheel drive vehicles is growing, but so is the need to improve the fuel economy. Powering all 4 wheels instead of two increases fuel consumption. Can an all-wheel drive vehicle have a good fuel economy? The answer to this question is an On-Demand AWD system where the all-wheel drive is activated only when required.
Compact SUV Many compact SUV including the 2011 RAV4 offer on-demand AWD.
More and more modern AWD vehicles use on-demand AWD although manufacturers often use marketing rather than engineering names for their systems. Let's look at on-demand AWD as it's defined by Society of Automotive Engineers or SAE, the organization that sets standards for the automotive industry.

Many compact and mid-size non-luxury cars and SUVs use some variant of this type of AWD. Typically it's a front-wheel drive biased system where the front wheels are powered at all times and the rear axle is engaged automatically. It's a simple, lightweight and effective system.
Examples of vehicles with an on-demand AWD system include the 2016 Mazda CX-5, 2011 Toyota RAV4, 2015 Chevrolet Trax, 2014 Ford Edge and 2018 Honda CR-V. The key difference is that the on-demand AWD system doesn't have a center differential.

How On-demand AWD works:
On-Demand AWD diagram On-Demand AWD in a vehicle with a transversely mounted engine.
In a typical compact SUV with a transversely mounted engine, there is a compact Power Transfer Unit (PTU) attached to the transmission (transaxle), see the diagram. Its job is to redirect the torque towards the rear axle. A driveshaft (DS) delivers the rotating torque to the rear differential (RD) that splits it between rear wheels. An electronically controlled coupling or multi-disc clutch C located in the rear differential controls the amount of torque sent to the rear axle. In more advanced versions, there are two separate couplings (clutches) in the rear differential that control the torque split between left and right rear wheels for torque vectoring. See, for example, the photo of the Rear Drive Unit (rear differential) of Ford Focus RS.

In some hybrid vehicles, the rear axle in on-demand AWD system is powered by an electric motor. For example, this setup is used in the 2018 Toyota RAV4 Hybrid or in the AWD model of 2019 Toyota Prius.

Open vs Limited slip differential: Many AWD vehicles have open front and rear differentials. An open differential is a simple mechanical device that splits the torque between left and right wheels, but the torque will follow the path of least resistance. This means if one of the wheels wheel spins freely, a very little torque will be directed to the opposite wheel.

How On-demand AWD system transfer torque to different wheels How On-demand AWD system transfer torque to different wheels
How does an on-demand AWD system transfer torque to different wheels? For example, what happens in a situation when you are taking off on a snowy road and one of the wheels starts spinning on the patch of ice?

When this happens, the vehicle stability control system reduces the engine power and using the antilock brake system, lightly applies brakes to the wheel that is spinning (left front in the diagram). This redirects some torque to other wheels through the front differential.

Using a limited-slip differential also can help with the same problem. In a limited slip differential, if one of the wheels spins freely, some amount of torque is still flows to the opposite wheel. Some SUVs with all-wheel drive offer a limited slip differential on the rear axle.

Pros: The on-demand AWD system works automatically and can be used on any surface at any speed. Since it's a light-weight system and the secondary axle is only engaged when required, it offers a better fuel economy. For example, according to EPA, the most fuel-efficient 2018 all-wheel drive non-hybrid SUV is Honda CR-V (27/33 MPG). Honda calls the CR-V all-wheel drive system "Real Time AWD", which is an on-demand AWD system based on a front-wheel drive by SAE definitions.
Another benefit is that it is a simple system that uses only a few components. It's also possible to add a torque vectoring feature by using two separate clutch packs in the rear differential; torque vectoring improves handling in turns.

Cons: It's not a heavy-duty off-road system and is better suited for slippery or snowy roads or mild off-roading. It's also not very strong for towing a heavy trailer.

Does an on-demand AWD need any maintenance? In most AWD vehicles the only two components that need regular maintenance are the rear differential and power transfer unit. Other components require only regular inspections, check the maintenance schedule in your owner's manual for more details.

Is an on-demand AWD good in snow? We tested several SUVs with this system in winter conditions. For example, we took the 2011 RAV4 in the photo through an off-road trail with up to 14 inches of snow. It works well, provided the vehicle has good winter tires. Of course, as with any AWD, it only helps accelerate on a slippery surface, but doesn't help in braking or steering.