The growth of hybrid and electric cars will greatly depend on the availability of next-generation auto batteries. In a move to secure its supply of lithium ion batteries for future hybrids, Toyota will start buying batteries from Sanyo, according to Nikkei.

Currently, Toyota’s sole supplier of nickel metal hydride batteries is Panasonic EV Energy Co, its joint venture with Panasonic. Sanyo currently supplies hybrid batteries to Ford, General Motors and Honda, and signed a deal with Volkswagen to produce lithium ion batteries for vehicles to be introduced in 2010.

Toyota Prius battery pack

Nickel metal hydride battery pack in 2010 Toyota Prius.

Together, Panasonic and Sanyo currently provide the vast majority of batteries for today’s hybrids. In fact, Panasonic is awaiting regulatory approval for plans to buy a majority stake in Sanyo.

Toyota has been having trouble with meeting demand for the popular Toyota Prius because of a lack of battery supply. Toyota currently has annual Prius capacity of about 500,000 cars. Panasonic EV Energy recently announced plans to double battery production capacity to about 1 million units a year by the middle of 2010. Last year, Ford’s ability to expand production of the Escape Hybrid was limited by its supply of batteries from Sanyo.

Toyota will first use Sanyo batteries in a hybrid minivan slated to debut in Japan around 2011. Sanyo is expected to supply batteries for about at least 10,000 vehicles a year, according to Nikkei. Toyota also plans to use lithium ion batteries in a plug-in version of the Prius.

The United States is trying to catch up with Asian hybrid battery makers. Earlier this month, the US Department of Energy awarded $1.5 billion in grants to US battery makers in attempt to build a domestic manufacturing base for advanced auto batteries—to spur growth in the burgeoning hybrid and electric car industry, and to create clean tech jobs especially in Michigan.