If they can do it, will they pass those savings on to the consumer, or will the buyers still be paying a 'premium' for the technology. I guess it all depends on how popular hybrids continue to be. Given the Toyota Camry Hybrid price increase, I'd say it all it comes back to the supply and demand question.
Toyota aims to cut cost of hybrid technology in half - MarketWatch
The FT quoted Kazuo Okamoto, head of research and development at Toyota, as saying that the carmaker's third generation of its hybrid system would be half the size and weight of its current version, and that the company would cut the cost in half.
Update: According to the Inside Line (found via autoblog), Toyota is planning on cutting back the premium for hybrids to about $1,900. Honda has said they will cut back on their premium by $1,700 by 2009.