Japanese automaker Toyota Motor Corp. plans to make key parts of its Prius hybrid in China, company officials said.
China is currently the world's largest automobile market, a Kyodo News report in Japan Times said Monday.
The report said Toyota recently received approval from China to produce its next Prius model.
Under the new arrangement, Toyota will gradually move production of Prius' key components, including batteries and electric motors to China, Toyota officials were quoted as saying.
Analysts said China's restrictions on exports of rare earth elements is a factor. Some of the rare earth elements are key components for hybrid car parts such as batteries and permanent magnet electric motors.
China, which produces more than 95% of the world's rare earth supplies, has imposed strict production and export quotas on these elements, citing environmental concerns.
Despite such statements the World Trade Organization ruled that China’s duties and quotas on the export of raw minerals, such as zinc, violated its rules. Beijing is trying to delay the proceedings by appealing the ruling.
"Rare earths and concerns about their supplies could very well have played a role in this decision," Vivek Vaidya of Frost & Sullivan told the BBC.
He explained that Toyota's move to start producing components in China may help counter these restrictions as it will be buying the elements to use within China, the BBC reported.