Mercedes Benz' S400 departs from the company's previous approach to fuel efficiency. Until now, Mercedes has focused on increasing the efficiency of its diesel engines. But with competition from Lexus' LS460 and LS600 hybrids, Mercedes is making the shift.

Some details about the S400 have slowly trickled out — we reported on its lithium-ion battery, developed by Continental. Now the company says the ride will be available in Europe next June and in the United States in 2010.

The luxury model will cost around $100,000 ($88,000 starting price for S-Class models, plus a $14,000 hybrid premium).

The German automaker is making an effort to keep that premium relatively low. Mercedes Benz says it sees a demand for a hybrid bigger than the models already available. "Not everyone can drive a Smart on vacation," Klaus Maier, Mercedes Benz's director of sales and marketing, told BusinessWeek. "We need solutions for big cars."

The S 400 will get 30 mpg and relies on a 279-hp 3.5-liter V-6 gas engine, coupled with a small electric motor driven by a lithium ion battery. According to Mercedes Benz, the motor generates the power of a V-8 engine with the fuel needed for a V-4. The S400 isn't a "full hybrid," however: It cannot run only on battery power. Instead, the electric motor provides a boost while the car is accelerating, and the S-400 also recovers energy while braking.

Mercedes plans to introduce a new hybrid every year, and to make one of every five cars it sells a hybrid by 2015. It's the first German automaker to make a significant move in hybrid production. Considering the slow start Mercedes Benz had in the hybrid market, that number is impressive.

There does seem to be a market for luxury hybrids: Some buyers have held off on purchasing Priuses and other hybrids because of appearance and size. Mercedes Benz' goal is to offer better mileage without making any sacrifices in comfort or performance. "We have to ensure that people in six years will be able to drive a big car without sacrifices or a bad conscience," said Maier.