October 22, 2008 / 9:33 PM / 11 years ago

LG Chem to supply GM Volt batteries -- sources

* GM to name Volt battery supplier in November

* First-generation Volt to use LG Chem batteries

* GM, LG Chem discussing battery warranty costs

* GM, LG Chem, Compact Power, A123 decline comment

By Soyoung Kim

DETROIT, Oct 22 (Reuters) - General Motors Corp (GM.N) has chosen a unit of South Korea’s LG Chem Ltd (051910.KS) to supply lithium-ion batteries for its Chevrolet Volt and is working out the terms of a supply contract expected to be announced in November, two sources briefed on the project said.

Compact Power Inc, a Detroit-area based unit of LG Chem, and a partnership between Germany’s Continental AG (CONG.DE) and U.S.-based A123 Systems have been in the race to supply the electric Volt with battery packs.

The Volt battery contract has been closely watched as one of the first tests of the challenge of adapting the lithium ion batteries popular in consumer electronics for a new generation of electric cars.

The 400-pound battery pack designed for the the Volt is also expected to be the most expensive element of the rechargeable car and its single most important component.

The Volt is on track to become the first mass-market, plug- in hybrid when it is launched in 2010. It has also become a symbol of GM’s effort to reinvent itself at a time when its sales are slumping and its ability to survive the downturn has come under scrutiny.

GM and Compact Power are now discussing the details of a commercial agreement, including how to split warranty costs for the batteries, according to two people familiar with the talks who asked not to be identified because they were not authorized to talk about the high-profile deal.

Most of the Volt prototypes GM is testing are running with LG Chem batteries, the sources said, adding that the prototypes have continued to perform without any glitches.

Although LG Chem is now close to a final deal for the first-generation Volt battery, GM could opt to keep the Continental consortium doing battery development work for future versions in an effort to drive costs down and improve performance for the expensive batteries, the sources said.

A GM spokesman said no final decision on a battery supplier had been made and repeated the automaker expected to announce one by the end of the year.

An LG spokesman in Seoul said: “We were informed that the results are due in November, but we didn’t get any official answer from GM yet. We hope for and expect a good result.”

GM Vice Chairman Bob Lutz, who has shepherded the Volt through its development since a concept version was unveiled in January 2007, was quoted as saying in August that GM had already made a decision on a supplier, but was not ready to announce one.

Continental and A123 were not immediately available for comment. Compact Power declined comment.

GM is designing the Volt to run for 40 miles on a single charge and to be capable of being recharged overnight at a standard electric outlet. An on-board 1.4 liter gas engine will kick in on longer trips to generate power for the battery.

Unlike traditional hybrids such as Toyota Motor Corp’s (7203.T) Prius, which are powered in turns by a battery or by the gas engine depending on driving conditions, the Volt will be powered only through its more powerful and larger battery.

In September, GM Chief Executive Rick Wagoner showed off the production version of the Volt, which is scheduled to be released in November 2010.

Analysts estimate lithium-ion battery packs would add as much as $10,000 to the price of a vehicle, raising the question of how affordable the first generation of cars such as the Volt will be.

GM expects to manufacture 10,000 Volt cars in its first 12 months of production and to ramp that up to 60,000 a year over time.

Last month, the U.S. government approved tax breaks of up to $7,500 for plug-in hybrids such as the Volt. (Additional reporting by Kevin Krolicki in Detroit and Angela Moon in Seoul; Editing by Andre Grenon)

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