Toyota Motor and Mazda Motor announced a deal under which Japan's top automaker will supply its hybrid technology under license to Mazda, in the latest link-up within the fast-changing auto industry.

Japan's No.1 and No.5 carmakers have been discussing the possibility behind the scenes since last spring as the popularity of gasoline-electric cars surged in Japan with the help of generous government subsidies.

Hybrid cars, which improve fuel efficiency by twinning internal combustion engines with electric motors, are seen as crucial for automakers to boost sales in the coming years as governments introduce stricter environmental regulations.

Gasoline-electric cars have enjoyed a burst of demand especially in Japan over the past year as the government introduced an exemption from certain taxes for gasoline-electric and other next-generation vehicles for a three-year period.

Hybrids are spreading fast in Japan, and launching a model in the domestic market has become an urgent task, Mazda Executive Vice President Masaharu Yamaki told a joint news conference in Tokyo.

That is one of the reasons why we decided to seek this agreement with Toyota, he said.

Mazda said it aimed to begin selling a vehicle that combines Toyota's hybrid system with its own next-generation gasoline engine in Japan by 2013. Key components such as battery packs, controls units, inverters and regenerative braking units will be procured from Toyota suppliers.

The agreement underscores a growing need for smaller carmakers to find partners to fill the technology gap without draining their limited resources. Among others, archrivals Daimler AG and BMW AG are also working together on hybrid development.

DISTANCING FORD

A Toyota-Mazda pairing also highlights a distancing of Mazda from top shareholder Ford Motor Co, which is among the few automakers today with a proprietary hybrid system after it initially licensed technology from Toyota.

Ford and Mazda continue to share some vehicle platforms and operate joint factories, but insiders say relations have cooled to match the U.S. automaker's diminished stake in the Hiroshima-based automaker, from a controlling 33.4 percent.

In late 2008, Ford sold all but 13 percent of its Mazda stake, which was further diluted to 11 percent when the latter issued $1 billion in new shares to raise money to invest in hybrid and other technologies.

Our relationship with Ford remains solid, Yamaki said, adding that Mazda had judged that procuring hybrid parts from Toyota's suppliers in Japan was more efficient than working with Ford.

Toyota, a pioneer in hybrid technology with at least a 12-year lead on most rivals, currently supplies its hybrid system to Nissan Motor Co, which uses it in its Altima sedan for the U.S. market to clear regulations there. Nissan plans to switch to its own hybrid system with a new model later this year.

Toyota Executive Vice President Takeshi Uchiyamada said the deal with Mazda could indirectly help to lower procurement costs as more hybrid vehicles enter the market.

The deal will likely be a boon for Toyota's key hybrid suppliers such as affiliates Denso Corp and Aisin Seiki Co, as well as Panasonic Corp, which operates a battery joint venture with Toyota.

Mazda, the maker of the Mazda6/Atenza and other sporty cars, has a goal of raising its fleet's fuel economy by 30 percent mainly by improving its internal combustion engines by 2015 compared with 2008 levels. It has said it would gradually add electric components such as hybrid systems mainly beyond 2015.

Yamaki declined to disclose Mazda's plans for hybrid launches outside Japan.

(Editing by Chris Gallagher and Michael Watson)

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