Toyota Motor Corp., fast on its way to challenging General Motors Corp. as the world's biggest carmaker, is betting it can turn a costly, environmentally friendly technology into a significant new source of profit while turning up the heat on struggling U.S. competitors.

For consumers, the mounting environmental push at Toyota will mean ever-expanding choices among a pricey new class of vehicles known as hybrids, which combine gasoline engines with electric motors to boost power and improve fuel efficiency. For rivals among Detroit's carmakers, Toyota's growing sales clout may leave little choice but to devote more resources toward the development of hybrids, perhaps by leasing Toyota's technology.

Toyota has generated a great deal of buzz with its hybrids, particularly as gasoline prices have risen. Notably, its hot-selling Prius -- an egg-shaped vehicle that gets 60 miles to the gallon in start-and-stop city driving -- has appealed to technology enthusiasts. But now, Toyota is rolling out a second generation of hybrids, from luxury sedans to sport-utility vehicles, all aimed at bringing the technology firmly into the mainstream as a high-end product for those willing to pay a premium.

Katsuaki Watanabe, who took over as Toyota's president last month, said his goal is to advance the cause of environmentally sound technologies.

As such, Toyota will eventually offer hybrid versions of virtually all the cars in its lineup, underscoring a new reality in the company's boardroom: The hybrid is no longer a niche product. "This is now a core technology for us," Watanabe said in an interview at company headquarters.

Toyota's expanded environmental strategy comes as Detroit's carmakers are mired in problems, starting with a price war and rising health care costs for unionized workers and retirees. Their borrowing costs have gone up because the agencies that measure corporate creditworthiness determined earlier this year that both GM's and Ford Motor Co.'s debt was no longer investment grade, a move that increases the cost of raising money. Toyota has enough in cash reserves to cover the $7 billion it plans to spend on research and development this year without raising any debt.

The hybrid strategy is a test of Toyota's ability to lead the industry.

Japan's biggest carmaker has long let Detroit act as the industry standard-bearer. But executives at rival car companies, speaking privately, say Toyota's push in hybrids amounts to its biggest attempt yet to influence the global car industry by dint of its growing sales heft. It is already the world's most profitable carmaker when measured by total earnings, and after selling 7.4 million cars last year, has plans to sell 8.5 million vehicles worldwide by next year, putting it in a position to rival GM, which sold roughly 8.9 million in 2004.

Hybrids, however, are a gamble for the Japanese carmaker. These cars come with a huge battery that stores electricity generated when the driver puts on the brake, energy that is later used to help propel the car, thus reducing emissions and saving gasoline. But hybrids are expensive. Watanabe concedes that the better gas mileage doesn't provide enough savings, over the life of a car, for consumers to earn back the extra cost. Gas, though expensive these days, just isn't expensive enough for hybrids to make sense economically.

Watanabe said Toyota, through its storied manufacturing system of kaizen, or continuous improvement, can reduce by half the $4,000 to $5,000 consumers pay per car for hybrid technology. Analysts aren't so sure, noting that batteries use metals that are rare, and prices of these materials could increase along with demand for hybrids, making cost reductions difficult.

Moreover, any success in lowering prices will either take years or what Watanabe concedes would be a technological breakthrough. "But it can be done," Watanabe said.

Even before those cost reductions, though, Toyota is betting it can sell this new technology by appealing to the affluent with environmental concerns, but who don't want to sacrifice power or comfort. A crucial test case for Toyota is the recent release in the United States of a sport-utility vehicle called the RX 400h, sold under Toyota's Lexus nameplate, the best-selling luxury brand in the United States.

The hybrid version of this SUV comes with a six-cylinder engine that Toyota says gets 31 miles per gallon in the city. The vehicle gets a considerable boost from its electric propulsion system.

The message: You can have your green ride and have your power, too. It is too soon to say if this approach will gain long-term traction, but the early sales numbers suggest customers are nibbling. "Hybrids are a little expensive," said Watanabe. "But the technology is in its second generation, and people are now buying them for both the environment and the ride."

Some Toyota executives have been comparing the RX 400h strategy to the earlier success of Volvo. The Swedish carmaker, now owned by Ford, has marketed itself successfully for years as a safe vehicle, a message that resonated with urban and suburban professionals willing to pay a premium to protect children in the back seat. Toyota is targeting the same demographic.

Dealers are now stressing that the RX 400h, while getting the gas mileage of a Camry sedan, has the feel of an eight-cylinder engine, even though it only has a V-6. When other luxury-car makers include a more-powerful engine, they charge a hefty markup. An eight-cylinder version of the BMW X5 sport-utility from BMW AG, for example, costs more than $10,000 more than the six-cylinder version, according to prices on, a Web site where consumers compare prices.

Toyota is using a similar logic for its hybrids. It is also charging a premium for the extra power in its RX 400h, the difference being that the extra power comes from electricity instead of two more gas-burning cylinders.

The Lexus RX 400h is the same model as the RX 330, except that the former is a hybrid and lists for about $49,000 -- $11,000 more than the RX 330. Toyota doesn't say how much more a hybrid costs to develop than a conventional engine. But at most, it costs $6,000 more, say industry analysts. That $5,000 difference is profit.

Chris Richter, a veteran car-industry analyst with brokerage CLSA Asia-Pacific Markets, said the U.S. consumer, on average, won't pay a premium for fuel economy alone. But "they will pay for horsepower," he said.

Some say there is a cynical calculus to this environmental push as well.

U.S. regulators fine carmakers that don't meet certain emission standards, which are measured as an average across the lineup of cars a maker sells. By selling more hybrids with good fuel efficiency, Toyota can sell more gas-guzzling models as well.

Toyota has coveted particularly the market for pickups for years -- and will soon be attacking in force when its big Tundra pickup trucks, leviathans that will compete with Chevrolet and Ford pickups, start coming off the line in 2006 from a plant under construction in San Antonio.

Toyota goes environmentally upscale with the Lexus RX 400h hybrid SUV, shown at a recent event in New York.