UPDATE 3-Nissan to develop compact hybrids - Nikkei

But making a full-fledged entry into the market years after its two bigger rivals would put Nissan at a disadvantage in terms of sales competition, he said.

"It probably would not even dare to think of competing with Toyota or Honda on sales. Its purpose is probably only to have mass-selling products that can meet tougher emissions regulations such as those in California," he said.

Hybrid cars have been in the spotlight in recent months in Japan thanks to strong sales of Toyota's fully remodelled Prius and Honda's new Insight, both with significantly lowered price tags, as well as government subsidies for low-emissions vehicles.

Honda's new Insight became the first hybrid to top the monthly ranking of best-selling cars in Japan in April, while Toyota's third-generation Prius, which debuted three months after the Insight, was No.1 in May. [ID:nT316781]

Analysts said Nissan's adopting its own hybrid technology instead of buying components from Toyota would not give it much cost advantage but would help it cultivate its technological development as well as secure a stable supply.

"Developing on its own will help Nissan build its technology and data, which will be key to enhancing electric cars in the future. There is also some risk in keeping the supply of core components in the hands of a competitor," Kazaka's Tabei said. (Additional reporting by Nathan Layne; Editing by Chris Gallagher)