New Prius goes on sale today in Japan, Toyota claims 80,000 pre-orders

The new Prius will start at 2.05 million yen ($21,620), or at least 300,000 yen less than what executives had originally said the car would cost.

The about-face came after Honda's Insight became an instant hit after going on sale in Japan in early February. Honda sold nearly 10,500 Insights in April, more than double its target of 5,000 units a month.

Toyota had originally planned to raise the price on the latest Prius because it packed more advanced features, a bigger, 1.8-liter engine and better mileage of 50 miles per gallon, or 38 km/liter

With an eye on competing with the Insight, Toyota will also take the unprecedented move of continuing to sell the entry-level grade of the previous Prius in Japan at the same price as the Insight's 1.89 million yen, with a monthly target of 3,000 units.

Honda's boss was critical of the move. "You can't just suddenly change your pricing policy -- that's going to destroy the market," Chief Executive Takeo Fukui told Reuters last week.

"We're not paying any attention to (the Prius). They're not going to last long with that strategy," he added, speculating that the Prius would eat into sales of other Toyota cars and hurt its dealers.

JPMorgan's Nakanishi agreed that striking a healthy balance with sales of non-hybrid cars will be crucial going forward.

"As hybrids become more attractive and cost-competitive, we need to worry about how the other cars are going to hold their own. Hybrids still have lower margins (than gasoline cars,) so there's going to be some pressure on profitability. All that has to be taken into account while they sell their hybrids," he said.

Toyota's shares ended down 0.8 percent at 3,560 yen on Monday, outperforming the benchmark Nikkei average's 2.4 percent decline. Shares in Toyota, which is forecasting a $8.6 billion loss for the current financial year, have rallied about 23 percent so far this year, lagging Honda's 41 percent rise.

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