STOCKHOLM/FRANKFRURT (Reuters) - Volkswagen truck brand Scania has signed a battery supply deal with Sweden’s Northvolt and is in talks about making an equity investment as part of the startup’s efforts to raise 1.5 billion euros ($1.68 billion), Scania’s head said on Monday.

FILE PHOTO: A truck of Swedish company Scania is pictured in Hanover, Germany September 19, 2018. REUTERS/Fabian Bimmer/File Photo

Chief Executive Henrik Henriksson told Reuters he could not disclose exactly how much capacity Scania had secured from Northvolt, which said this year it had sold roughly half of its planned 32 gigawatt annual capacity by 2023.

“It’s a substantial part,” he said.

“There will be a shortage of batteries for the automotive sector globally in the coming five to six years because there’s simply not enough capacity. So the more capacity we can get our hands on, the better we feel,” he added.

Driven by regulatory pressure to cut diesel pollution, commercial truck makers have made a flurry of announcements to deliver battery electric or hydrogen-fuelled vehicles.

Scania is also going electric by invested in battery buses, electric roads and hydrogen fuel-cell technology, as well as its plug-in hybrid trucks. Hybrid and alternative fuel vehicles accounted for 4.5 percent of total sales in 2018.

Henriksson, who said the battery would be the most expensive part of an electric vehicle, saw opportunities to share costs with its parent Volkswagen, which also makes VW and MAN branded trucks and is spending $50 billion on electrifying its vehicles.

Volkswagen’s supervisory board is on brink of announcing plans to start battery production, two people familiar with the matter told Reuters separately on Monday.

VW declined to comment. VW’s Traton unit, which makes the VW and MAN trucks, did not respond to a request for comment.

Scania had picked Northvolt because its business model of developing cells in collaboration with customers meant they could create batteries specifically for trucks, rather than relying on current models geared towards cars.

Henriksson said electric cars tended to draw on their batteries for “a couple of hours a day, while our vehicles are running 24/7” so batteries needed tailoring for different needs.

“We’re participating in both the discussions about how to secure future capacity and volume commitments, and also, when it comes to equity and the like, the capital structure going forward,” Henriksson said of talks with Northvolt.

EUROPEAN CHALLENGER

Northvolt, founded by former Tesla executive Peter Carlsson, is looking to spend 3 billion euros to build Europe’s biggest battery cell plant in Sweden, a project to rival U.S. electric carmaker Tesla’s Gigafactory.

The company’s plans, including a potential second factory in Germany, are seen as central to Europe’s effort to compete with Asian rivals, which have gained a lead by locking in supply deals with carmakers.

Northvolt is now raising 1.5 billion euros, split equally between debt and equity, and has asked the European Investment Bank for a 350 million euro loan.

It had raised more than its 80 million to 100 million euro target last year, with contributions from Scania, engineering group ABB, wind turbine maker Vestas and energy firm Vattenfall.

It has also secured some funds from German engineer Siemens and carmaker BMW.

A person familiar with the matter said Vattenfall had agreed to discuss battery orders and provide equity, while ABB had signed a memorandum of understanding to participate.

Atlas Copco, Husqvarna, Vestas, Volvo Cars, Jaguar Land Rover, Daimler, and BMW were in advanced talks over the volumes of batteries they would order from the factory, the source said.

The source added that Wartsila, Siemens, E.On, Ikea and Volkswagen were in early discussions about their participation.

The companies declined to comment on the new fundraising and supply talks, or were not immediately available for comment.

Northvolt’s Carlsson confirmed Scania’s comments but declined to comment on other discussions. “Scania is part of what we call the partnership group,” he said.