Volkswagen will aim to start importing and using the battery in its hybrid and electric cars by 2012, the Nikkei said.
The move comes after plans by Nissan Motor Co and NEC Corp to start mass-producing lithium-ion batteries, considered more environmentally friendly than nickel-hydrogen ones.
Sanyo makes nickel-hydrogen batteries that can be recharged repeatedly and the batteries will be used by Volkswagen and subsidiary Audi AG in the Volkswagen group's first hybrid model to be rolled out as early as next year.
But the lithium-ion battery to be jointly developed would be smaller and lighter than nickel-hydrogen batteries, enabling the car's weight to be cut by 200-300 kilograms (440-660 pounds), the Nikkei said.
The new battery would also allow the car to have better fuel efficiency and acceleration, it added.
Sanyo, which has the biggest global share of lithium-ion batteries used in personal computers and mobile phones, plans to invest nearly 100 billion yen ($973 million) to make and develop them over the next three years.