Industry and government are on track to bring down the cost of batteries to power hybrid and electric cars, which is crucial for improving commercial appeal of those vehicles, U.S. Energy Secretary Steven Chu said on Wednesday.

Chu said at the Detroit Economic Club the Obama administration is not deterred by soft sales of plug-ins in their first full year in showrooms, nor does it worry about the potential for overcapacity in battery production.

And, he said, the administration is sticking to its goal of seeing up to 1 million electric and plug-in hybrids on U.S. roads by the middle of next decade -- a goal industry insiders believe is over-optimistic.

If you look at what they've done, they've done it wisely, Chu said of measured initial production of the mostly electric Volt by General Motors and the fully electric Leaf, made by Nissan <7201.T>.

The two sold fewer than 20,000 of those vehicles combined in 2011, fewer than expected.

The government has spent more than $2 billion under the Obama administration to underwrite domestic battery production, and billions more to finance electric car development to cut U.S. oil imports and reduce pollution.

Government and industry officials say bringing down battery costs is critical to meeting those goals, and Chu cited aggressive steps and measurable progress.

Chu said batteries suitable for plug-in hybrids four years ago cost about $12,000 to produce.

That's pretty expensive. We think we're on target by 2015 so that the cost of that same capacity battery will be reduced to $3,600, a really aggressive step in the right direction, Chu said.

The goal, he added, is to more than halve the cost by 2020.

Once you get a battery that's $1,500 and much less expensive electric motors, which we are also working on, then you get to a very exciting price point, he said.

(Reporting By Ben Klayman in Detroit and John Crawley in Washington)

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