Nissan's Bet on Hybrids

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Nissan (Nasdaq: NSANY) announced on Monday that it will license gas-electric hybrid engine technology from Toyota (NYSE: TM) for use in a hybrid version of the Nissan Altima. The new car's scheduled to hit showrooms in 2006. At the same time, Nissan intends to continue developing an alternative hybrid technology in-house, while it also works on cleaner-burning diesel engines and fuel cell technology.

Talk about hedging your bets. About the only alternative to the internal combustion engine ("ICE," to those in the know) that Nissan does not admit to working on, is a windmill-powered car. (There I go again, spilling trade secrets.)

This is a pretty savvy business decision on Nissan's part. Toyota and Honda (NYSE: HMC) were first out of the gate to recognize the appeal of hybrid cars to the Ralph Naderites, penny-pinchers, and all-around gas sippers. By paying royalities to Toyota, Nissan's getting in on the hybrid game, but also buying time to see how the market for the future wave of autos will shape up.

Companies are generally close-mouthed about the size of their royalty payments, but your average hybrid version of an ICE vehicle already adds about $5,000 to the base cost. As an educated guess, I suspect that any price increase related to royalties will pale beside the hybrid premium.

For now, Nissan can bide its time, watch the alternative-to-the-ICE-market develop, and then decide where to best place its capital expenditure bets: on its own hybrid technology if the new Altimas sell like hotcakes; on clean diesels, if not; or on fuel cells.

Rich Smith is not a certified "car guy." Before he bought his truck last year, he consulted the experts on The Motley Fool's Buying and Maintaining a Car discussion board. You can find him most days hanging out there -- near, but not talking with, the cool kids -- just nodding a lot.