By Chang-Ran Kim and Noriyuki Hirata

TOKYO (Reuters) - Sanyo Electric Co and Volkswagen AG said on Wednesday they would jointly develop lithium-ion batteries, joining an intensifying race to provide the key component for the next generation of hybrid cars.


Sanyo, which has the biggest global market share of lithium-ion batteries used in personal computers and mobile phones, said it would spend 80 billion yen ($769 million) over the next seven years for the project, aiming to begin mass production in 2009.

Top global automakers are all working on developing vehicle-use lithium-ion batteries to replace nickel-hydride ones currently used in gasoline-electric hybrid cars, since they can store more energy in lighter, smaller packs.

"Our focus in future will be directed more strongly at making electrically powered automobiles alongside ones driven by more efficient combustion engines," Volkswagen Group CEO Martin Winterkorn said in a statement.

"This cooperation is an important step for us."

Europe is a tiny market for hybrid cars now, preferring cheaper diesel engines to reduce carbon dioxide emissions and boost fuel efficiency. But new limits on CO2 emissions proposed in Europe and due to take effect in 2012 will significantly raise the need for hybridization, a Sanyo executive said.

The first lithium-ion batteries are due to be mounted on an Audi AG , Volkswagen's luxury car, in 2010.

Production of the lithium-ion batteries will initially begin on a new manufacturing line to be set up at Sanyo's Tokushima factory in western Japan.

Sanyo will look for a new location for further production starting in the business year from April 2010, to meet future demand of about 15,000 to 20,000 batteries a year, it said.

In view of anticipated demand in Europe, Sanyo was considering building a production base there for lithium-ion batteries in future, Executive Vice President Mitsuru Honma said.

By 2015, Sanyo aims to boost production capacity to 10 million cells a month, enough for 1.7 to 1.8 million cars. That would give it a share of about 40 percent of a global hybrid market that Sanyo estimates at 4 to 4.5 million vehicles by mid-decade. It includes rechargeable plug-in hybrid vehicles, which Sanyo hopes to supply from 2011.

At the Geneva Motor Show in March, Volkswagen showcased its Golf TDI Hybrid concept, which combines a high-tech diesel engine and an electric motor.

Sanyo and Volkswagen are currently collaborating on the next generation of nickel-metal hydride systems. Sanyo has separately supplied batteries for hybrid vehicles made by Ford Motor Co and Honda Motor Co .

Japan's Toyota Motor Corp , Nissan Motor Co and Mitsubishi Motors Corp have separate joint ventures with Matsushita Electric Industrial Co , the NEC Corp group and GS Yuasa Corp , respectively, to mass-produce lithium-ion batteries.

(Editing by Michael Watson)

© Copyright 2008 Reuters.

Photo:
Sanyo eneloop batteries.