Over the past decade, consumers have mostly overcome unfounded fears about the safety and longevity of batteries in their hybrid cars. But now the trusted battery technology, nickel metal hydride, is slowly being replaced by lithium ion—raising questions about which automaker will make the switch to lithium and when.

Prius battery pack

Toyota says that nickel metal hydride batteries perfectly suit the needs of hybrids, like the 2010 Prius. It uses a relatively small 1.4 kWh pack.

Toyota, Honda and Ford—the leading makers of hybrid cars—have relied on nickel metal hydride ever since they starting producing gas-electric cars. Shinzo Kobuki, senior managing director of Toyota’s battery technology, earlier this month told Automotive News that the company has no intention of switching to a lithium ion battery for its hybrids—at least for the next 10 years. Kobuki said that converting to lithium would mean “at best a 1 to 2 percent improvement in the vehicle’s performance.”

Toyota’s decision to stay put with nickel probably has a lot to do with its joint venture, now known as Primearth EV Energy Co., and formerly known as Panasonic EV. In late 2009, that entity went from big to really big when Panasonic acquired a majority control of Sanyo for $4.6 billion—giving the pair a market share in nickel metal hydride batteries of about 80 percent. That means sunk costs, economies of scale, and a good deal on the current battery technology.

As we reported in September 2009, Toyota had come to the conclusion to stick with nickel more than a year ago. The company said it conducted three years of “secret tests” on 126 Toyota Priuses equipped with lithium ion batteries. Toyota engineers like nickel metal hydride for its proven durability, stability and safety. Executive like its cost advantage—especially considering the volume of hybrids that Toyota produces with nickel batteries.

Going Lithium

Meanwhile, many of the auto companies just starting to make hybrids are using lithium batteries from the very beginning. Mercedes, BMW, and Hyundai all point to advantages of lithium to pack more energy and power into a smaller space. Hyundai’s use of lithium helped the company bring in the 2011 Hyundai Sonata Hybrid at 263 pounds lighter than the competing Ford Fusion Hybrid. Less weight means more miles to the gallon. All of the new generation of plug-in hybrids and electric cars, including those from Toyota, will use lithium batteries. And as we reported last March, Honda is planning to move its hybrids to lithium.

John German, formerly a Honda engineer and now with the International Council on Clean Transportation, believes that new lithium batteries will help hybrids even more than electric cars. “Lithium ion batteries will reduce the cost of the battery pack for conventional hybrids, but they’re not going to reduce the cost of the battery pack for plug-in hybrids and electric vehicles,” German told HybridCars.com. He believes that nickel metal hydride batteries in today’s hybrids store more energy than necessary, because they are built with power requirements in mind. “With the new high-power lithium ion batteries, they can cut them down to their actual energy requirements and still get all the power they need,” German said.

Nickel is Perfect, But…

As the debate about when (not if) to switch to lithium continues, Tesla is figuring out how to optimize the use of thousands of commodity lithium batteries—the kind used in cell phones and laptops—for its electric cars. That strategy of using lots of smaller cells has caught the attention of major automakers, including Daimler, BMW and—guess who—Toyota, the same folks who are sticking with nickel for its hybrids. Of course, Toyota has also invested $50 million in Tesla and is co-producing the RAV4 EV with the company. Last month, Greg Bernas, the chief engineer for the RAV4 EV told us that the “whole battery development will be different” on the Toyota S.U.V. from what Tesla currently uses.

Having the right battery at the right cost is half the battle for hybrids and electric cars. Toyota and Panasonic have dominated hybrids for the past decade and are maneuvering to do the same when it comes to electric cars. In the middle of 2010, Toyota invested in $50 million in Tesla. And according to a Bloomberg report, Panasonic last month bought a $30 million stake in the electric car start-up.

So, just like how the debate about the 10-year future of hybrid cars versus plug-in hybrids versus electric car ends up with an “all of the above” answer, the battery chemistry question is being answered the same way.