Magna Steyr Fahrzeugtechnik AG & Co. KG is set to begin shipment of lithium-ion-phosphate battery packs to Swedish truck maker AB Volvo.

Volvo will use the battery packs for its line of city buses, heavy-duty distribution vehicles and refuse trucks.

The battery contract is a harbinger of things to come from Magna, which is banking on the viability of electric vehicles, says Hubert Gach, general manager innovative systems & modules.

“Electrification of vehicles is one of the future keys (to success) for Magna,” he says, especially given the strict vehicle emissions rules being implemented in the major global auto markets.

While there are no concrete plans to make battery packs for other OEMs, contract talks are ongoing with several auto makers. “We’re in contact with European, American and Asian customers,” he says, declining to reveal details.

If a deal is reached, Gach says Magna Steyr, an operating unit of Canadian auto-parts supplier Magna International Inc., likely will manufacture the packs close to the final vehicle-assembly location.

Should an auto maker call for the assembly of whole vehicles, Magna Steyr is ready as well, Gach says, noting the supplier already has been contracted by Ford Motor Co. to produce the powertrain for a pure-electric Ford Focus to debut in 2011.

“Magna Steyr started seven years ago building hybrid demonstrators that show OEMs we are in position to build hybrid cars,” he says. “In the future and beyond, we see a huge market potential.”

Under terms of the Volvo deal, Magna Steyr will utilize cells produced by A123 Systems Inc. to make roof-mounted packs with a capacity of 4.8 kWh that will power an electric motor in the 94-hp hybrid system.

The packs will undergo final assembly at Magna Steyr’s Graz, Austria, complex.

“This is the first Li-ion battery pack we’ve brought to serial production,” Gach tells Ward’s, noting other Magna Steyr product groups are exploring similar packs for mild- and full-hybrids, as well as plug-in and full-electric vehicles.

In addition to Li-ion, Magna Steyr also is working with other battery chemical compositions to power future vehicles that call for smaller, more power-dense energy sources.