When it comes to hybrids, Toyota sells a significant number of its Prius vehicles globally (the company also sells hybrid variants of conventional models). As a result of its large stake in the hybrid market, Toyota has announced that it is developing a new electric motor for its hybrid and electric vehicles that will cut its dependence on China for rare earth materials.

The move comes after Japan and China had a diplomatic issue that led to China cutting any exports of rare earth to Japan for two months. China currently produces about 97% of the rare earth materials exported all around the world. The rare earth is needed in the electronics industry for making raw components.

China isn't the sole source for rare earth materials, however. The Associated Press reports that the U.S., Canada, and Australia all have sources of rare earth materials as well, but they stopped mining the rare earth in the 1990's because it was cheaper to source if from China. China has about 30% of the total supply of rare earths in the world.

Toyota spokes man Paul Nolasco said, "Toyota is always looking for a reduction in resources and in terms of costs."

According to analysts, the production of EVs and hybrids is still low enough that a loss of rare earth materials for a few months makes for little short-term risk. However, with the number of hybrids and EVs under development this could change in the future making it easy for China to hold rare earth materials hostage and tighten supply to drive prices up.

China is already reducing the amount of rare earths that it ships with production for 2010 reduced by 30% compared to the previous year.

Analyst Ryoichi Saito from Mizuho Investors Securities said, "This isn't a major issue right now, but as these types of cars become more popular, it becomes a big risk if supply is limited or cut off."

Toyota unveiled two new Prius models earlier this month.