By Jorn Madslien
Business reporter, BBC News, Paris Motor Show
Toyota has ruled out production of a diesel electric hybrid vehicle in response to plans for such cars from French carmaker Peugeot.
Mr Arashima would welcome a Nissan, Renault, GM alliance
Environmentalists say a car combining clean diesel technology with electric motors could achieve carbon dioxide emission reductions that would make them cleaner than Toyota's iconic petrol hybrid Prius.
But doing so would push up costs far beyond what consumers would bear, according to Toyota Motor Europe chief executive Tadashi Arashima.
"Already the diesel [price] premium is quite high, then you'd have to pay a hybrid premium, so we're not seeing that there's a market," Mr Arashima told BBC News.
Toyota has sold 500,000 petrol electric hybrids worldwide since they were first introduced, and it aims to double the number of hybrid models on offer to further boost those figures.
Mr Watanabe says Toyota will sell 10 million cars by 2010
But despite its prediction that hybrid sales are still rising, the firm does not see much demand for it in the markets where its growth is the strongest, Mr Arashima said, speaking in an interview with a small group of journalists on the eve of the Paris Motor Show.
Within Europe, he said, Russia is seen as the strongest growing market, albeit with demand almost entirely focused on petrol engines.
Indeed, next autumn the company will open a new factory in St. Petersburg where it aims to produce 50,000 Camry's.
"The Prius is not available in the Russian market," Mr Arashima observed.
But he said he had been surprised by strong sales in Russia of hybrid models from Toyota's luxury subsidiary Lexus, such as its RX400h sports utility vehicle and its 600h luxury saloon.
The Russian market is peculiar, since "some people are really rich", Mr Arashima observed.
"It's quite a polarised society," he said.
"Even if the price is higher, the [very wealthy Russians] are willing to pay. They want to buy the highest price models."
The Russian car plant that will open next year should reach its maximum output of 50,000 in four or five years, Mr Arashima said, with the possibility of expansion if demand turns out to be greater than current projections suggest.
"This plant property is fairly big," he said.
Such an expansion could involve production for exports, he acknowledged.
"I would not rule out the future possibility of supplying the West," he said.
However, the Camry model which will be produced in Russia during the early years will not be sold outside Russia, the Ukraine and other former Soviet Union states.
Toyota, which reiterated its goal to sell close to 10 million cars by 2010, said it expects the strongest growth to come in what group president Katsuaki Watanabe described as "emerging markets".
This would also be where it would expand its production capacity in the future, Mr Watanabe said in a speech on Wednesday night, dashing hopes - to the extent that there were any - that Toyota would raise production output in its Western European factories in the UK and France, or in the US.
But when pushed, Mr Watanabe declined to rule out the building of more factories in the US.
Indeed, Toyota's growth in the lucrative European and US markets remains strong.
In Europe, its market share has risen to 5.8%, and last year it sold more than a million cars there for the first time.
In the US, meanwhile, Toyota is set to overtake General Motors (GM) in terms of unit sales - perhaps as early as this year, according to some industry observers' predictions.
During the first half of this year, Toyota's sales in the US rose 7.1% to 4.36 million vehicles, while GM's sales slipped 2.3% to 4.6 million.
Toyota's profits rose 39% during the April to June quarter, to 371.5bn yen ($3.1bn; £1.6bn), while GM lost $3.4bn during the same period, in part due to more than $2bn in restructuring costs.
GM is in talks to join the Renault/Nissan alliance in an effort to sort out its problems.
"Healthy competition is always welcome," said Mr Arashima.
"If they think they can become more competitive by doing it, they should."