No sooner did Congress mandate dramatically higher fuel economy standards by 2020, than Toyota quickly threw down a second challenge to Detroit. Toyota President Katsuaki Watanabe announced that Toyota will raise its fleet average fuel economy to 35 mpg before the 2020 deadline. The company is attempting to keep the lead in the public perception of fuel efficiency. (Read the results of Consumer Reports' Brand Perceptions Survey.)

In addition, the company announced that it will begin producing its own lithium-ion batteries for plug-in hybrid vehicles through its joint venture with Panasonic. This is a key breakthrough, and it may put Toyota ahead in the race to produce plug-in hybrid vehicles. Plug-in hybrids can drive for short distances on electricity only, without starting their gasoline or diesel engines. If the batteries are large enough, they could allow people to drive all week without using gasoline, since 78 percent of Americans drive less than 27 miles a day. Conversion companies and universities have been modifying the current Prius to a plug-in for some time.

Today, automakers say there are no commercially available batteries with enough capacity to power plug-in hybrids. Most automakers agree that getting enough battery capacity on-board a car, without making the car too heavy or taking up too much space, will require lithium-ion batteries, rather than the nickel-metal-hydride batteries currently used in hybrids. Other automakers are working with suppliers to develop them and buying custom-made individual batteries for their demonstration vehicles.

While U.S. automakers and technology companies are still looking for breakthroughs in lithium-ion batteries, Toyota looks set to have batteries available for plug-in hybrids commercially available by 2010. Like General Motors (see "GM invests in cellulosic ethanol"), Toyota may position itself to be both an automaker client and a supplier for the next-generation energy technology, expanding its profit potential and competitive advantage.

Every major manufacturer is working on advanced automotive technologies, and it appears that for the foreseeable future, a reduction in gasoline consumption on the national level will come from a variety of energy and powertrain strategies.

—Eric Evarts

See our complete coverage of the 2008 Detroit auto show. And discuss the event in our auto show forum.