Sept. 5 (Bloomberg) -- Toyota Motor Corp., preparing to build Prius hybrids in the U.S. by 2010, will eventually make advanced batteries within North America to power the gasoline- electric cars, Vice Chairman Kazuo Okamoto said.

``We will start producing batteries in North America,'' Okamoto told reporters today in New York. The date of such production, now done only in Japan, depends on oil prices, which Toyota expects to continue rising, he said, without elaborating.

Toyota said on July 10 it would assemble the Prius at a plant under construction in Mississippi, scrapping plans to make Highlander sport-utility vehicles there. The company, which already makes gasoline-electric Camrys in the U.S., lacks local suppliers of unique parts such as nickel-metal batteries and electric motors for Prius and other hybrids.

Limited supplies of the Prius led to a 4 percent drop in U.S. sales this year through August for the market's most fuel- efficient car, even as gasoline prices topped $4 a gallon. U.S. allocation of the cars is 15,000 a month, little changed from a year ago, Jim Lentz, president of the Toyota City, Japan-based automaker's U.S. sales unit, said today in New York.

Without a local source of batteries ``it would be a logistical headache for Toyota,'' Brett Smith, an alternative- energy analyst at the Center for Automotive Research in Ann Arbor, Michigan, said today in an interview.

Toyota is the world's largest seller of hybrids.

Prius Profitability

``The important thing is scale. What is the production scale that justifies a battery assembly plant? An electric motor plant?'' Smith said. ``Toyota has a better idea about this than anyone else.''

Toyota is ``very close'' to lowering the cost of hybrid auto production to a point where profit on each vehicle sold equals that of equivalent gasoline engine-only models, said Okamoto.

Profit from the next Prius, due in 2009, will probably be on par with a Corolla sedan, and earnings from the next version of the Camry hybrid will be similar to the conventional model, Okamoto said.

The company last week said it will test a plug-in Prius with a lithium-ion battery pack in the U.S. late next year. Okamoto today declined to say when such a rechargeable car would be sold to consumers.

Toyota's U.S. sales are down 7.8 percent through August, amid an industrywide decline of 11 percent. President Katsuaki Watanabe told reporters and analysts in New York today he expects U.S. sales for the company of 2.44 million for the year, down 6.9 percent from 2007's record volume of 2.62 million.

In 2009, sales in the company's biggest market may rise less than 1 percent to 2.45 million, he said.

Toyota American depositary receipts rose 86 cents to $88.82 at 4:02 p.m. in New York Stock Exchange composite trading.

To contact the reporters on this story: Greg Bensinger in New York at gbensinger1@bloomberg.net; Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

Last Updated: September 5, 2008 16:04 EDT