Nissan Motor Co priced its battery-powered Leaf hatchback at more than twice the cost of a similarly sized gasoline car, counting on government subsidies to drive demand for the emissions-free vehicles.

Nissan, Japan's third-biggest automaker, is banking on electric cars to help it close the gap on rivals such as Toyota Motor Corp, which has won over fuel-conscious customers with its gasoline-electric hybrid Prius.

With a starting price of 3.76 million yen ($40,640), however, the Leaf will be still be out of reach for many drivers in Japan.

I'm interested (in the Leaf), but the initial cost is still high, even with subsidies, said Kiyotaka Shimizu, a 43-year-old cram school teacher.

I'm afraid the technology is not mature. I would choose hybrid cars at this stage, Shimizu said as he looked around a Nissan showroom at its headquarters in Yokohama, south of Tokyo.

The five-passenger Leaf is designed to provide a range of 160 kilometers (100 miles) on a full charge -- far less than a petrol car.

While skeptics abound, almost all major automakers are working on developing battery-run cars for use mainly in urban areas, to meet stricter emissions and mileage regulations being introduced around the world.

Carlos Ghosn, chief executive of Nissan and French partner Renault, has said he expects 10 percent of the world's auto market will be electric vehicles by 2020, a ratio at the top of industry projections.

Not to be outdone, electric car pioneer Mitsubishi Motors Corp followed Nissan's announcement with plans to slash 619,000 yen off the price of its i-MiEV electric car, to 3.98 million yen ($43,020). The new price will be effective April 1, when Japan's No.6 carmaker will begin sales to individuals.

With Japanese government incentives, consumers would pay 2.84 million yen for the i-MiEV, Mitsubishi Motors said. That is slightly less than the 2.99 million yen ($32,320) that Nissan said the Leaf would cost after state subsidies.

Mitsubishi Motors has been selling the egg-shaped i-MiEV mainly to corporate customers since last July. It aims to sell 4,000 i-MiEVs in Japan in the business year starting in April, and export another 5,000.

Nissan aims to sell 6,000 Leaf cars in Japan for the year ending in March 2011. It will start taking orders for the model in April in Japan, with the first delivery expected in December.

Without the many packs of expensive lithium-ion batteries, Toyota's Prius hybrid car starts at just over 2 million yen ($22,195) in Japan, before state subsidies.

Everyone would think (the Leaf) is expensive. Of course there are some people who are willing to buy, but generally speaking, it needs to be below 2 million yen for consumers in general to buy, said Advanced Research Japan analyst Koji Endo.

Nissan once considered leasing the batteries to lower the initial cost for consumers in Japan, but gave up on the idea due to regulations related to car inspections.

Nevertheless, Nissan said drivers would come out ahead over the long run. It estimates that owners would pay 86,000 yen ($930) in electricity costs over six years, compared with 670,000 yen ($7,200) at the pump for a traditional gasoline-powered car.

The most important point for our cars is zero emissions, Toshiyuki Shiga, chief operating officer of Nissan, said at a news conference. Hybrid vehicles still consume gasoline. I want to fully push this sales point.

Shares of Nissan gained 2.3 percent to 801 yen, while the benchmark Nikkei average rose 1 percent.

(Additional reporting by Chang-Ran Kim in TOKYO; editing by Lincoln Feast and Simon Jessop)