The German car manufacturer said Wednesday that it will work with Japanese electronics maker Sanyo to develop Lithium-Ion batteries for hybrid vehicles.

The two companies penned an agreement in 2006 to work on nickel metal hydride batteries, which Sanyo already supplies to Ford and Honda. That's the type of power cell most commonly used in the industry, also appearing in the most popular hybrid today, the Toyota Prius.

Lithium-ion batteries will likely make it into models by 2010, Volkswagen said. CEO Martin Winterkorn said that hybrids will become a major part of Volkswagen's product line aside from "ones driven by more efficient combustion engines."

Volkswagen has lagged behind the rest of the auto industry in bringing hybrid automobiles to market, although it has been working for several years on concept vehicles. In March, Volkswagen debuted its Golf TDI Hybrid concept, which combined its advanced diesel engine with an electric motor. Volkswagen claims fuel consumption of 69 mpg, putting it ahead of any hybrid in its class.

UPDATE But the biofuel industry blog Gas 2.0 reported two weeks ago that Volkswagen canceled that particular concept car, citing German automotive magazine sources.

The auto maker has, up until recently, focused a lot of its research and labor on diesel engines, and will release a Jetta based on this work -- called the BlueTDI -- later this year. While not a hybrid, it will be one of the least polluting gas-powered automobiles on the market.

Mass production of these batteries by Sanyo is slated to begin in 2011.