Toyota is to end production of diesel cars by the end of this year and focus its attention on hybrid models that generate electricity as they move.
Top Japanese car makers are teaming up to nearly double the amount of hydrogen stations in Japan, as the country seeks to head off competition from China and Germany.
Toyota, Nissan and Honda formed a joint venture with major gas and energy companies, including French industrial gases company Air Liquide, to build 80 new hydrogen stations in the next four years, to add to the 101 stations currently in Japan.
"At this stage, we believe there is significant space for cooperation, rather than searching for areas of competition," Shigeki Terashi, Toyota executive vice president told reporters.
The new venture, called "Japan H2 Mobility" or "JHyM", comes as the world's top economies rush to issue tougher environmental regulations that are spurring development of new clean cars and trucks.
Japan has focused on promoting fuel-cells, which combine hydrogen and oxygen in an electrochemical reaction, producing clean electricity to power vehicles or home generators.
But fuel-cell vehicles cannot get off the ground without a network of hydrogen stations, and vice versa, and the chicken-and-egg dilemma has stalled the roll-out of the technology, say industry professionals.
Hydrogen stations and fuel cell vehicles must be promoted in tandem in order to lower their cost, executives said.
"Unless infrastructure makers team up, new hydrogen stations tend to be concentrated in urban areas," said Hideki Sugawara, president of the new firm.
"In order to maximise the demand for FCVs (fuel cell vehicles), we have to expand geographically," he said.
The 101 hydrogen stations serve around 2,400 fuel-cell cars in Japan, according to official data, but a lack of viable stations has been a major hurdle for carmakers as they seek to boost production.
The Japanese government and the auto industry aim to introduce 160 stations and 40,000 fuel-cell vehicles by March 2020.
The government is also pushing to deregulate the sector to lower costs.
Toyota launched the Mirai, the world's first mass-market hydrogen fuel-cell vehicle, in late 2014 as it looked to push further into the fast-growing market for environmentally friendly cars.
Nissan and Honda also have their version of fuel-cell projects.