DETROIT – Tesla Motors Inc. will supply the battery pack for Daimler AG’s Smart-brand ForTwo electric, the fledgling auto maker reveals.

The all-electric ForTwo is expected to launch late this year or early in 2010.

News of the supply agreement comes as Tesla Chairman and CEO Elon Musk confirms the California-based auto maker will unveil its third all-electric model, a 5-passenger sedan, in February.

Currently, Tesla produces the Roadster 2-seater and began taking orders this week for a high-performance derivative, the Roadster Sport.

Musk suggests the agreement with Daimler is vindication of Tesla’s ambitious product plans, which have been viewed with considerable skepticism. “It’s a great endorsement,” he tells journalists here at the North American International Auto Show.

The deal also reflects Daimler’s growing commitment to electric-drive products, having also laid the foundation for a joint venture with Germany-based cell-maker Li-Tec. The JV is expected to manufacture lithium-ion batteries for Mercedes-brand electric-drive cars based on the BlueZero concept car unveiled just prior to the Detroit auto show.

Meanwhile, Musk reveals the price target for Tesla’s sedan is $49,900. The car is expected to arrive in 2011.

He also extends an olive branch to competitors, noting Tesla is anxious to partner with other auto makers as electric-drive programs proliferate. Observers claim Tesla represents a “Silicon Valley vs. Detroit” dynamic, Musk says.

“The reality is we really want to work with Detroit.”