Toyota's effort to produce a new generation of vehicles started in 1997 when they associated the hybrid technology with their brand new model, the Toyota Prius. The vehicle was originally sold in Japan and went on as a world product in 2000. It was certified as a Super Ultra Low Emission Vehicle (SULEV) by the California Air Resources Board (CARB). In its 2004 model, the Prius was certified as an Advanced Technology Partial Zero Emission Vehicle (AT-PZEV), which means it earns PZEV credits, as opposed to it being a Zero Emissions vehicle part of the time.

Toyota perfected the hybrid technology to their Prius as it aimed to reduce the amount of emissions it produces and to be as energy-efficient as possible. Prius hybrid, a front-drive subcompact four-door sedan with a five-seating capacity, used both a gasoline engine and an electric motor as an engien. It held a continuously variable automatic transmission, and a 1.5-liter four-cylinder gasoline engine., the Prius used a varying combination of gas and electric power, depending on power needs. The two power sources worked either at the same time or one at a time nlike the Honda Insight, its own version of hybrid thhat used electric motor only to assist the gas engine with hard acceleration.

The very popular 2004 Prius used an all electric heat pump for heating and cooling and the new drag coefficient of 0.26 is the lowest in the industry. This second generation Prius was voted 2005 European Car of the Year, after the fuel-sipping sedan picked up the corresponding Motor Trend Car of the Year title for 2004. The Prius won the North American Car of the Year award for 2004 while the first genereation Prius was nominated in 2001.