In what could become the next chapter of the hybrid car saga, Toyota is planning to produce small, affordable high-mpg hybrids. The downsizing of hybrids, first in Europe and Asia, could represent the technology’s shift to mainstream global markets where economies of scale would mean dramatic increases in hybrid production.

The Mid-Japan Economist newspaper this week reported that Toyota plans to produce a hybrid version of the Yaris subcompact at its factory in France starting next April. This report follows at least a year’s worth of rumors about a small hybrid slated for production at Toyota’s Valenciennes factory.

Critics argue that hybrid systems do not make sense for small cars, which are already relatively efficient. But tougher environmental laws throughout the world will require lower emissions for cars of all sizes.

Hybrids on a Global Scale

Stories about another tiny Toyota hybrid in the works—a Scion iQ Hybrid—first emerged in January 2010. A year earlier, at the 2009 Detroit Auto Show, Toyota introduced the FT-EV pure electric concept—which shares its platform with iQ. We reported last week that Toyota is working on a hybrid version of the Toyota Etios, a compact car for the Chinese and Indian markets. And in the United States, Toyota is scheduled next year to introduce the Lexus CT200h, a small sporty luxury hybrid.

According to R.L. Polk, global sales of hybrids through June of this year have reached 766,086 units—already surpassing last year’s total global production of 740,355. In other words, while hybrid sales have been flat in the United States, hybrid production in 2010 on the global scale will more than double last year’s volume. Further increases in hybrid production in Asia and Europe will likely occur with the introduction of small cars equipped with hybrid gas-electric drivetrains.

The increase in global hybrid production will help carmakers reach economies of scale, especially with hybrid batteries. If the cost comes down, then the technology could be applied—with little or no premium—to affordable models like the Toyota Yaris. The conventional Yaris is rated at 29 mpg in the city and 36 on the highway. Fuel economy for the Yaris Hybrid, depending on its design, could exceed the Prius’s average of 50 mpg.

Toyota Yaris