Chrysler LLC says its electrified vehicles will account for most of the lithium-ion battery output from A123Systems.

Chrysler confirms today it has chosen the Massachussetts-based battery supplier as its source for battery cells, packs and a jointly developed battery module to support ENVI, the auto maker’s crucible of advanced-technology innovation.

“We will be their largest customer,” says Lou Rhodes, vice president-advanced vehicle engineering and president of ENVI.

Last week, China-based Shanghai Automotive Industry Corp. (SAIC), confirmed A123 will supply a lithium-ion battery pack for a future mild hybrid vehicle, but Chrysler is confident A123 can manage its production accordingly.

“Their capacity plans account for our plans,” Rhodes tells Ward’s, adding he expects Chrysler will be supplied from a planned A123 site in Michigan.

Against this backdrop, the Obama Admin. has allocated $2 billion of its $800 billion economic stimulus package to support domestic manufacturing of advanced batteries.

The supplier has yet to choose a site, but anticipated annual capacity would support production of 500,000 plug-in hybrids or 5 million HEVs by 2013.

Meanwhile, Rhodes says Chrysler is on track to meet its goal of launching an electrified vehicle next year. He does not tip his hand regarding the type of vehicle, nor does the auto maker offer confirmation.

But a viability plan submitted to the U.S. Treasury Dept. suggests Chrysler has decided on a sports car based on the fully electric Dodge Circuit concept car unveiled in January at the Detroit auto show. The plan was submitted in February to support the auto maker’s request for emergency government funding.

Chrysler has received $4 billion in Treasury Dept. loans to help it stave off bankruptcy. And if it completes additional restructuring by May 1, including finalization of a proposed partnership with Fiat Auto Group, the auto maker stands to acquire another $6 billion in taxpayer-funded loans.

The viability plan describes five additional electric-drive vehicles, including three that feature Fiat technology – one of which is a fully electric “mini compact” ostensibly scheduled for production in late 2010.

Rhodes declines comment on the viability plan, other than promising a “pretty aggressive rollout” of electric-drive vehicles from 2010 through 2013.

Meanwhile, he says the A123 battery is adaptable for fully electric vehicles or range-extended electric vehicles that feature small gasoline-powered engines that function as generators. Chrysler promises a range of 40 miles (64 km) per charge from the former and a minimum of 100 miles (161 km) of battery-powered driving from the latter.

In addition, Chrysler’s A123 battery will feature a common design that fits both applications and is adaptable across vehicle lines to accommodate high-volume vehicle production. This strategy is intended to mitigate the technology’s impact on retail pricing.

“The key to affordability is driving to high volume as quickly as possible,” Rhodes says, adding affordability likely will be realized sooner than later.

“We will launch with that modular approach,” he says.

A123’s technology, dubbed Nanophosphate Lithium-ion, features iron-phosphate chemistry over alternatives such as manganese. Rhodes says Chrysler prefers iron-phosphate chemistry because it affords the best balance between energy density and safety.

emayne@wardsauto.com