The introduction of Euro VI emissions regulations in 2014 could be the tipping point that makes petrol-electric hybrid cars cheaper to run than diesels, Toyota believes.
The new rules will lead to a big clampdown on exhaust emissions of nitrous oxide (NOx) and hydrocarbons, which are expected to increase the cost of diesels considerably.
Toyota and its upmarket Lexus division are committed to hybrids, and have pledged to ensure that the cost of buying them matches the price of an equivalent diesel within five years.
Mr Takeshi Uchiyamada, the head of Toyota electric vehicle research and development, believes this could be helped by the rising cost of diesels.
Big electric investment
The company's commitment to hybrids is largely based on the electric motors and battery packs it is developing to help power them.
These will be transferable to a variety of alternative-fuel models full electric cars, plug-in hybrids and even fuel-cell vehicles with minimum change, says Mr Uchiyamada.
Plug-in car on show at Frankfurt
At the Frankfurt motor show, the company is displaying its first plug-in car, which is based on the new Prius. It also has a concept for the hybrid Auris mid-sized hatchback that will go into production in the UK next year.
In the long term, Toyota sees electric cars playing a major part in maintaining urban mobility, fuel-cell hydrogen vehicles as a solution for long-distance commercial traffic and hybrids as the best way forward for drivers who want to drive further than is possible with electric power alone.
Toyota unsure which horse to back
Much will depend on future breakthroughs with battery technology, says Mr Uchiyamada. 'The ultimate performance target we want can not be achieved with current technology,' he says. 'We don't yet know what the answer will be.
'In the meantime, we have to develop powertrains that can accommodate various fuels and this has implications for our resources. Deciding where to put the emphasis with those resources is a big headache.'