Toyota plans to supply its hybrid power system to Fuji Heavy, which will use it to make hybrids a mainline product in the North American market, which accounts for 35 per cent of its group sales, the Nihon Keizai Shimbun said.
Fuji Heavy for its part is considering supplying to Toyota the technology on lithium-ion batteries it has developed with electronics maker NEC for use in hybrid vehicles, the economic daily said without citing sources.
Working-level talks on the technical cooperation have already been taking place, with Toyota president Fujio Cho and his Fuji Heavy counterpart Kyoji Takenaka set to enter negotiations soon, it said.
A Toyota spokesman said the vehicle manufacturer was "having talks with various companies (over hybrid technology) but nothing has been decided".
He declined to disclose the names of these companies.
Hybrid vehicles have both a gasoline engine and an electric motor which come into use depending on driving conditions, making them much more economical and environmentally-friendly than conventional petrol driven cars.
Toyota has pioneered the use of green technologies with its Prius, the world's first mass-produced hybrid car.
US auto giant General Motors, the top shareholder in Fuji Heavy with a 20 per cent stake, has formed a partnership with German-US car manufacturer DaimlerChrysler to jointly develop hybrid vehicle technology.
The Nihon Keizai said that the alliance was likely to focus on technology for use in large vehicles rather than vehicles with engine displacements of around three litres, Fuji Heavy's strength.