It said the project aims to undertake research and development of lithium-ion batteries that would be more competitive in terms of technology and price.
The four-year project still needed approval by the German Cartel Office.
Volkswagen, which wants to launch the first electric car by 2013, presented a prototype of the e-UP! model at the Frankfurt Car Show this month.
VW already works with Japan's Toshiba and Sanyo as well as with China's BYD on battery technology.