Volkswagen is setting up a joint venture with Varta Microbattery GmbH to develop more powerful batteries for use in electric cars, Europe's biggest carmaker said on Friday.
It said the project aims to undertake research and development of lithium-ions battery that would be more competitive in terms of technology and price.
The four-year project still needed approval by the German Cartel Office.
Volkswagen, which wants to launch the first electric car by 2013, presented a prototype of the e-UP! model at the Frankfurt Car Show this month.
VW already works with Japan's Toshiba and Sanyo as well as with China's BYD on battery technology.