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Toyota's Future Is Hybrid and Hydrogen, Not Electric

Stocks in this article: TM TSLA HMC

NEW YORK (TheStreet) -- The world's leading automaker, Toyota Motors (TM) has completely given up on electric cars. Instead, the company is focusing on hybrid and hydrogen-based vehicles.

It's a big change.

About two weeks ago,Toyota decided that it will end its relationship with Tesla (TSLA) after its agreement with the electric car maker expires this year.

Toyota entered into a $100 million agreement with Tesla under which the latter supplied electric powertrains for a version of Toyota's RAV-4 sports utility vehicle. The electric SUV, however, turned out to be a flop, which prompted Toyota to end its relationship with Tesla.

Moreover, Toyota has also said that it believes that the future of long-distance travel lies in hybrids, plug-in hybrids and fuel-cell powered cars. The electric vehicles are only good for short-range travel.

For hybrids, Toyota is working on improving fuel efficiency and expanding its portfolio by the end of the decade.

Meanwhile, the company is laying the groundwork for the highly anticipated launch of its hydrogen-powered vehicle in 2015.

Toyota's American depositary receipts have dropped by 5.9% for the year to date, and were trading in the high $114 range as of noon Tuesday.

Toyota is the biggest player in the hybrid vehicle market. The company's iconic Prius hybrid vehicle has been the top-selling vehicle in California, the largest vehicle market in the U.S., for two years in a row, ahead of Honda's (HMC) Civic and Tesla's Model S.

Moreover, Toyota has announced that it has developed a computer chip for hybrid vehicles which will improve fuel efficiency by 10%.

Moreover, the new system, which is significantly smaller and weighs four times less than the conventional system, can also be installed in a larger number of vehicles. This will enable to company to significantly grow its portfolio of hybrid vehicles, which currently includes 24 hybrid passenger car models and one plug-in hybrid model.

The company says that it can start installing the new systems in its vehicles by 2020.

So is Toyota a buy?

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