updated 5/28/2008 3:10:35 PM ET 2008-05-28T19:10:35

Sanyo and Germany's Volkswagen AG will develop lithium-ion batteries for hybrid vehicles as global automakers race to develop more environmentally friendly technology.

Japanese electronics maker Sanyo Electric Co. said Wednesday it will invest $769 million to expand production by 2015 of such batteries, with plans to start mass producing them in a Japanese plant by next year, making 15,000 to 20,000 batteries a year.

The deal with Volkswagen, announced Wednesday, follows a 2006 agreement where Sanyo and Volkswagen agreed to work together in nickel metal hydride batteries, now used in most gas-electric hybrids like Toyota's Prius.

Many major automakers — including General Motors Corp. as well as Nissan Motor Co. — are rushing to perfect the technology for hybrids, electric vehicles and other "green" cars. As gas prices soar, such cars are becoming increasingly attractive to consumers.

Concerns about ecology and global warming, as well as strict regulations in the U.S., Europe and other regions are pressuring companies to develop fuel-efficient vehicles.

Sanyo already provides nickel metal hydride batteries for Ford Motor Co., which makes the Escape hybrid, and Honda Motor Co., which makes the Civic hybrid.

"Our focus in future will be directed more strongly at making electrically powered automobiles alongside ones driven by more efficient combustion engines," Volkswagen Chief Executive Martin Winterkorn said in Germany. "This cooperation is an important step for us."

Lithium-ion batteries, now widely used in laptops and other gadgets, are more powerful and can be smaller than nickel metal hydride batteries, promising potential to power future ecological cars. Volkswagen said it hopes to use lithium-ion batteries by 2010.

In March, Volkswagen showed its Golf TDI Hybrid design study, which combined high-tech-diesel and an electric motor to reduce fuel consumption.

The agreement between VW and Sanyo does not involve producing batteries at a jointly run plant.

But Sanyo will speed up development of lithium-ion batteries for plug-in hybrid electric vehicles, with hopes to start mass production by 2011, the company said in a statement.

Plug-in hybrids travel longer distances as an electric vehicle because they plug into a home outlet socket. Hybrids deliver better mileage than comparable regular cars by switching between a gas engine and an electric motor.

On Tuesday, Toyota Motor Corp. announced it was making its third battery plant with a joint venture with Matsushita Electric Industrial Co. to make batteries for hybrids. The plants all make nickel metal hydride batteries, and Toyota has not given details of its lithium-ion battery production plans.

Nissan's joint venture with electronics maker NEC Corp. is scheduled to start mass-producing lithium-ion batteries in 2009 at a plant in Japan. Nissan is promising to start selling electric vehicles in the U.S. and Japan in 2010, as well as its own hybrid the same year.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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