Toyota Motor announced Wednesday that it intends to expand its presence in the electric car market when it starts a full-scale production of lithium-ion batteries in 2010.

The Japanese auto giant currently uses nickel-metal hydride batteries in its hybrids vehicles like the Prius, which the company launched over a decade ago.

Some analysts and companies have said the batteries are limited by the amount of energy they can store.

Lithium-ion batteries, often found in consumer electronics, such as cell phones, have caught the interest of the electric-vehicle community because they are more powerful than the nickel-metal hydride batteries at the same size.

But they are expensive and also have the so-called "thermal runaway" problem where batteries can overheat and catch fire. But the batteries’ market potential has prompted researchers and entrepreneurs to work on solving the problem (see Batteries Key to Plugging in at Electric Vehicle Symposium).

Toyota appeared confident that its engineers could solve this tricky situation by announcing its plan to start limited production of the battery in 2009, and then move to full-scale production in 2010.

Panasonic EV Energy, a joint venture between Toyota and Matsushita Electric Industrial, will make the batteries.

Better batteries are not only key in getting better mileage out of hybrids, but they could also increase the drive range of plug-in and all-electric vehicles.

Toyota plans to start selling plug-in vehicles powered by lithium-ion batteries in Japan, the United States and Europe by 2010. It has yet to disclose the models that will carry the new batteries.

The company also plans to speed up the development of “small electric vehicles” for mass production, but stopped short as to when that would be.

To support its electric vehicle efforts, Toyota said it will create a research department by the end of the year to advance a next-generation battery that can outperform lithium-ion.

Of course Toyota isn't the only one looking to commercialize battery technology for electric cars and plug-in hybrids.

Lead-acid battery technology developer Firefly Energy said Wednesday it had closed $15 million in its third round of financing. Investors included Quercus Trust, Khosla Ventures and Infield Capital.

Although Firefly plans to use the money to tap the trucking market by allowing truckers to power things like air conditioning and televisions in their sleeper car, the company is eyeing the hybrid and plug-in hybrid electric markets.

Other players in the battery space include the Israeli startup Project Better Place, which announced in October it scored a hefty $200 million for a plan to lease batteries and build battery recharge stations around the globe. And in November, the Watertown, Mass.-based A123 Systems grabbed $30 million to increase production of lithium-ion batteries for hybrid and electric cars in a fourth round of funding.

But not all companies are looking to improve batteries as a way to build cars that use smaller quantities of gasoline, or none at all.

European vehicle transmission supplier Xtrac said Wednesday its fly wheel technology, currently being developed for Formula 1 racing cars, could be used as an alternative to traditional hybrid systems, like those developed by Toyota.

In general, a flywheel is a spinning metal wheel in which energy generated by momentum is absorbed and stored. Xtrac claims its flywheel, once attached to a vehicle's transmission system, would speed up to capture kinetic energy when the car is decelerating. The flywheel would then slow down to let energy go back into the transmission system when the car is accelerating.

The company is currently testing its flywheel technology, said Andrew Heard, a vice president for Xtrac.