Volkswagen, Sanyo to develop lithium-ion batteries

By Chang-Ran Kim and Noriyuki Hirata

TOKYO (Reuters) - Sanyo Electric Co (6764.T: Quote, Profile, Research, Stock Buzz) and Volkswagen AG (VOWG.DE: Quote, Profile, Research, Stock Buzz) 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 (NSUG.DE: Quote, Profile, Research, Stock Buzz), 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.