LG Chem Ltd will have the capacity to build battery cells that could support up to 250,000 electric vehicles in the United States when its first U.S. plant becomes fully operational in 2013, the chief of the U.S. unit said on Thursday.

Compact Power, the Michigan-based unit of South Korea's LG Chem, is investing between $300 million to $400 million to build a battery cell manufacturing facility in Michigan, Compact Power Chief Executive Prabhakar Patil told Reuters.

The project is supported by $151 million in grants awarded by the Obama administration, he added.

The grant, announced on Wednesday, was part of the $2.4 billion allocated by the U.S. government as part of its green economy vision and efforts to enhance U.S. energy independence by supporting battery technology for clean-energy cars.

Compact Power is supplying next-generation lithium-ion batteries for General Motors Co's Volt plug-in, the centerpiece of the automaker's effort to move away from gas-guzzling vehicles. It has also won the contract to build batteries for GM's planned SUV plug-in for the Buick brand.

We're seeing a strengthening of commitment for electric vehicles not only from GM but other manufacturers that we believe this is going to be a sustainable business, sustainable volume, Patil said in an interview.

Plus, the U.S. government is very serious about supporting battery technology, Patil said on the sidelines of an industry conference in Traverse City, Michigan.

He said that its cell manufacturing facility is scheduled to open in the second quarter of 2012.

When the plant becomes fully operational in 2013, it would hire more than 400 people, he added.

Almost all battery manufacturing for advanced technology vehicles is based in Asia.

Under the contract with GM, LG Chem initially will manufacture battery cells for the Volt at its existing plant in South Korea. The cells will then be shipped directly to a GM battery assembly facility to be built in Michigan.

However, sharply higher U.S. fuel economy standards and increased consumer demand for fuel efficient vehicles have provided a sustainable business case for setting up cell manufacturing capacity in the United States, Patil said.

The Volt, which is scheduled to go into production in late 2010, remains one of the most closely watched upcoming GM vehicles and is seen as key to the automaker's efforts to reinvent itself after it emerged from bankruptcy in July.

Compact Power's U.S. battery cell plant will be capable of building 15 million to 20 million cells annually, which would support up to 250,000 battery packs, Patil said. Each battery pack would power one vehicle.

The company is looking at three sites in Michigan: St. Clair, Pontiac and Holland, and expects to select the final location by the end of 2009, he said.

Lured by the growth potential of the automotive battery industry, several private equity investors have expressed interest in investing in Compact Power, but the company does not see immediate need for external capital, Patil said.

South Korea Michigan Battery Electric cars