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Daimler AG CEO Dieter Zetsche says the German company will become a leading manufacturer of electric-car batteries. Trouble is, his new business partner Renault SA CEO Carlos Ghosn has the same idea.

Both chiefs have vowed to produce the best power pack as they begin working together to jointly develop electric cars, creating a potential conflict in their budding cooperation before it even starts.

Daimler and Renault, which swapped 3.1 percent stakes last week to seal a vehicle and engine development cooperation, left batteries out of the deal. Each side will instead vie for the right to install their power packs in electric-powered Smart and Twingo cars they will jointly develop by 2013.

“Daimler has been a company that has traditionally been reluctant to give up its own technology path,” said Anil Valsan, London-based director of automotive research at Frost & Sullivan. “While Daimler’s battery may have a technical edge, Renault-Nissan’s solution may end up being more cost competitive.”

Daimler, the world’s second-largest maker of luxury cars, and Renault, France’s second-biggest carmaker, both regard the technology for storing and managing electricity as critical in the shift to pollution-free driving. Batteries, rather than engines, will be the “heart” of future vehicles, Thomas Weber, Daimler’s development chief, said in a March interview.

Along with Renault, Stuttgart-based Daimler plans to work with BYD Co. Ltd., the Chinese carmaker backed by billionaire Warren Buffett, to build an electric vehicle for China and team up with Evonik Industries AG to develop electric powerpacks.

‘Pioneer’

“Daimler aims to be, and will be, a pioneer in the field of electric mobility,” Zetsche told shareholders earlier this week. “When alternative drive systems go into mass production in a few years, we will be ahead of the competition.”

Ghosn meanwhile plans to make Renault, along with the carmaker’s partner Nissan Motor Co., the global leader in zero-emission vehicles. The effort is due to begin in December with the Nissan Leaf, a battery-powered, five-person car that can travel 100 miles (161 kilometers) before recharging. The Leaf is set to go on sale in Europe before the end of the year.

Potential conflicts in the new alliance bring to mind Daimler’s failed merger with Chrysler LLC as well its effort to absorb Mitsubishi Motors Corp., investors said at yesterday’s annual meeting in Berlin. Working with Renault and Nissan may not bring the benefits Daimler expects, they said.

“We have grave doubts that the new partnership will be a success,” Ingo Speich, a Frankfurt-based fund manager with Union Investment, said at the meeting. “The traces of missteps run like a red thread through Daimler’s cooperation history.”

Sparring partners

The competition between Daimler and Renault to supply batteries for the two- and four-seat versions of the Smart and Twingo minicar was already evident in an exchange between Zetsche and Ghosn at the alliance’s announcement April 7.

“We are obviously going to do everything in order for our battery to be considered as the best,” Ghosn said. While Ghosn said that Daimler is “not obliged” to accept batteries from the Renault-Nissan alliance, he said he “doubts” Daimler would find better components elsewhere.

Zetsche responded that while he may not be able to find a better battery on the market, he may find one “inside” Daimler.

“We have the production know-how and the financial muscle to secure a long-term competitive position,” Zetsche said yesterday in re-emphasizing Daimler’s battery ambitions.

On Thursday Renault’s Chief Operating Officer Patrick Pelata said he did not expect competition between the partners on electric vehicles: “No, no. We’re putting everything together at the moment … We’re in the process of comparing who does what.”

Asked sidelines of a conference on electric vehicles in Paris if Renault and Daimler would work together on electric vehicles, Pelata replied: “Our teams are discussing that … It was part of the talks (before the deal was signed) but to talk and to concretize you need numbers,” Pelata said.

Daimler aims to spend 2 billion euros ($2.72 billion) to develop batteries and fuel-saving engines in the next two years, up from an average of 567 million euros a year in the past three years, after losing ground to competitors, Weber said.

Competing ventures

Part of that money will be funneled into a battery venture with Evonik for a factory in Kamenz, Germany, to produce lithium-ion powerpacks for an electric-powered Smart as well as Mercedes-Benz vehicles by 2012. Daimler earlier this month signed an agreement with BYD to set up a partnership to develop electric vehicles for China, the world’s largest car market.

Renault-Nissan plans to manufacture batteries through a joint venture with NEC Corp., Japan’s biggest personal-computer maker. The alliance is building five battery plants in Japan, the UK, France, Portugal and the United States, with a total production capacity of 500,000 units annually.

Carmakers are teaming up to develop electric batteries out of necessity because of the cost. Lithium-ion batteries, which are lighter and more powerful than the nickel-hydride batteries now in use, currently cost $700 to $750 per kilowatt hour, about twice as much as the cost projected to make electric vehicles competitive with fuel-burning cars, according to Frost & Sullivan estimates.

Cost comparison

For a 24 kilowatt-hour battery like in the Nissan Leaf, the battery cost would therefore range from $16,800 to $18,000, or more than the price of the Nissan Sentra, which starts at $15,420.

Mike Tyndall, a London-based automotive specialist with Nomura Securities, said he’ll be “hugely surprised” if Renault and Daimler end up using separate batteries for the small cars they produce together given the cost.

“They may reach a point where it’s clear that one technology will be better than the other,” Tyndall said. “It’s all a question of how willing they are to work together.”