Toyota to move to all-hybrid vehicles by 2012 (link courtesy of Kenneth)
Never one to pass up an opportunity to extend my previous meanderings, I'll point out that even most conservative economic observers, assuming they're intelligent, have to admit that externalities are a topic not solved by the Econ 101 version of the free-market viewpoint. (The rest are idiots who'll say "But Coase's Theorem solves everything!" Um, no. Coase's Theorem contains an extremely large assumption which, while useful for presenting examples in Econ 201, is essentially never true in the real world. I'm not saying that a property-rights-based framework of looking at externalities is worthless; it's just that Coase's work needs to be the starting point, not the ending point, of these discussions. I have nothing but contempt for those people, but then again, I have nothing but contempt for overly-simplistic views on both ends of the political spectrum. But I'll save my rant about the Greens for another day...)
Anyway, the case of electric (or hybrid, or fuel-cell, or what have you) vehicles illustrates another pitfall with the standard approach to dealing with externalities (namely, government intervention to reward businesses which reduce externalities or punish those who don't): the feedback loop works in both directions. While the government can (and should) exert its influence on automakers, automakers can (and have) exerted their influence on government. One needs only to look at the lamentable history of California's ZEV policy to see this in action. (You can certainly argue that this was done the "wrong way" in the first place, with mandates instead of incentives, and this is probably true -- but this is yet another tangent.) With the automobile industry so large, powerful, and facing such a large cost of changing to any other system, it's understandable that they would fight such proposals tooth and nail.
In the end, it appears like the market has finally ended up doing the right thing -- consumers have demanded more fuel-efficient cars and so the market has responded by producing more fuel-efficient cars. A macroeconomic love story, to quote those annoying ads. But if anyone claims that this is proof that the government doesn't need to meddle in situations like these, I'll cheerfully smack them upside the head, since, well, why do you think the automakers got started researching these technologies in the first place? Hint: it wasn't because they wanted to.
Moral of the story: markets usually good, but far from perfect; sky is blue. Film at 11.