Toyota Motor Corp said on Monday its new Prius had received pre-sale orders for 80,000 vehicles in Japan, kicking off what promises to be a fierce battle against hybrid rival Honda Motor Co.

Toyota, which has dominated the market for gasoline-electric cars so far, is looking to take back the crown after Honda's new Insight became the first hybrid ever to top the best-sellers' list in Japan last month.

The hybrid market is going to be one of the fastest-growing segments in the world, said JPMorgan Securities auto analyst Takaki Nakanishi.

With the global economy in a recession, luxury and large cars are not selling but fuel-conscious cars are in fact growing. Toyota's earnings performance is hurting right now, and they can't afford to lose the lead in this market, he said.

Introducing the third-generation Prius, Executive Vice President Akio Toyoda said the upgraded model, which costs about $3,000 less than the previous version, had received more than 80,000 orders ahead of the start of sales on Monday in Japan, where it aims to sell 10,000 vehicles a month.

We lowered the price to appeal to a broadening customer base, Toyoda, who will be promoted to president next month, told a news conference.

The new Prius, first unveiled at the Detroit auto show in January, will also go on sale in North America and Europe this month, followed by other markets later. Toyota has set a global sales target of 400,000 units for the car in 2010.

Although gasoline prices have nearly halved since peaking last July, automakers expect growing interest in the fuel-saving technology with consumers continuing to trade in big SUVs in favor of small cars, even in the United States.

By 2018, JPMorgan Securities expects roughly one in every 10 cars to be a hybrid, with global sales reaching 9.96 million vehicles as more brands such as Daimler's Mercedes-Benz and Volkswagen, as well as General Motors Corp's plug-in Chevy Volt, join the market.

Hybrid sales are also being supported by governments offering consumers incentives to trade in older gas-guzzling cars in favor of more fuel efficient models to stimulate demand amid the worst industry slump in at least three decades.

For a graphic of Toyota's and Honda's hybrid sales click here

VOLUME TRAP

The new Prius will start at 2.05 million yen ($21,620), or at least 300,000 yen less than what executives had originally said the car would cost.

The about-face came after Honda's Insight became an instant hit after going on sale in Japan in early February. Honda sold nearly 10,500 Insights in April, more than double its target of 5,000 units a month.

Toyota had originally planned to raise the price on the latest Prius because it packed more advanced features, a bigger, 1.8-liter engine and better mileage of 50 miles per gallon, or 38 km/liter.

With an eye on competing with the Insight, Toyota will also take the unprecedented move of continuing to sell the entry-level grade of the previous Prius in Japan at the same price as the Insight's 1.89 million yen, with a monthly target of 3,000 units.

Honda's boss was critical of the move. You can't just suddenly change your pricing policy -- that's going to destroy the market, Chief Executive Takeo Fukui told Reuters last week.

We're not paying any attention to (the Prius). They're not going to last long with that strategy, he added, speculating that the Prius would eat into sales of other Toyota cars and hurt its dealers.

JPMorgan's Nakanishi agreed that striking a healthy balance with sales of non-hybrid cars will be crucial going forward.

As hybrids become more attractive and cost-competitive, we need to worry about how the other cars are going to hold their own. Hybrids still have lower margins (than gasoline cars,) so there's going to be some pressure on profitability. All that has to be taken into account while they sell their hybrids, he said.

Toyota's shares ended down 0.8 percent at 3,560 yen on Monday, outperforming the benchmark Nikkei average's 2.4 percent decline. Shares in Toyota, which is forecasting a $8.6 billion loss for the current financial year, have rallied about 23 percent so far this year, lagging Honda's 41 percent rise.

($1=94.80 Yen)

(Editing by Lincoln Feast)

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