Daimler AG, maker of Mercedes-Benz luxury cars, is suing Cobasys for failing to provide hybrid battery packs as agreed for a planned Mercedes-Benz gasoline-electric SUV. The German automaker paid Cobasys $6 million in connection with development of the batteries. Cobasys is jointly owned by Energy Conversion Devices Inc. and a division of Chevron Corp.

News of the lawsuit, reported in the Detroit Free Press, follows revelations earlier this year that Cobasys, a supplier of nickel metal hydride batteries, provided faulty hybrid batteries to General Motors. In December 2007, General Motors voluntarily recalled 9,000 hybrid vehicles due to an internal leak in the battery pack that caused the hybrid system to fail. The vehicle could still be driven, although without the benefits of the hybrid system. GM’s hybrid sales have been negatively impacted by limited battery supply.

The availability of reliable hybrid battery systems is seen as the key to expanding global hybrid production. Nearly every major automaker is heavily investing in hybrid battery production, and in strategic partnerships with battery suppliers. The next generation of high-mpg hybrid and plug-in hybrid vehicles will also depend on automakers’ supply of batteries.

In an exclusive interview with HybridCars.com, a Cobasys executive—who asked not to be named—responded to GM statements and press reports, saying, “A lot of it is not correct,” but declined to elaborate further.

Cobasys Blamed for Lack of American Hybrids

In turn, a former employee of Cobasys, who also chose to remain anonymous, wrote to HybridCars.com, placing the blame on the Cobasys management team. In an email, he wrote that the contract between Cobasys and the hybrid partnership between GM, Daimler, and BMW—which locks the partners into using Cobasys batteries for its current mild hybrids—is “the largest stumbling block in getting this product to market, and hopefully will not sour the North American market on American hybrids.” The inside source said that the automakers in the partnership have almost completely taken over responsibility to redesign the 880/800 battery. GM is serving as the lead in the effort. He added, “Now our American ingenuity and capabilities are being called into question by our foreign partners.”

The former employee wrote that the few engineers and scientists with the skills to resolve Cobasys’s problems had “been forced out or fired, primarily because they realized the difficulties ahead and had the misfortune to voice it to management who was blinded by a nice facility and pretty brochures.”

He pointed to these problems as the reason why Mercedes-Benz decided to use a lithium ion battery, from Johnson Controls-Saft and Continental AG, for the company’s planned Mercedes S400 luxury sedan hybrid in 2009 or 2010. “Had the Cobasys system worked, and had they had confidence in Cobasys, they would have used them.”