(Story updated with analyst reaction to Ener1 joint venture and share price updates)

NEW YORK ( TheStreet) -- Lithium battery maker Ener1 ( HEV) says it has signed a joint-venture agreement with China-based Wanxiang Electric Vehicle to produce lithium-ion cells and battery packs for the rapidly growing Chinese market.

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Wanxiang Electric Vehicle is a unit of leading Chinese auto parts maker Wanxiang, China's largest tier-one auto parts supplier, with $10 billion in annual revenue.

Ener1 said the joint venture, called Zhejiang Wanxiang Ener1 Power System, will produce battery systems for several of Wanxiang's existing light- and heavy-duty auto and power grid customers for delivery this year.

As part of its 40% stake, Ener1 will provide intellectual property, engineering, manufacturing and technical expertise to the partnership. With its 60% stake in the partnership, Wanxiang Electric Vehicle will contribute via its property, plant, equipment and customer relationships. The venture will use Wanxiang Electric Vehicle's existing 553,000-square-foot facility in Hangzhou.

The joint venture is expected to achieve annual cell manufacturing capacity of about 40,000 electric vehicle battery packs annually by 2014.

The partnership comes as the Chinese government sets an annual production goal of 500,000 hybrid or all-electric cars and buses by 2012, says Ener1. "The Chinese government has demonstrated on numerous occasions its ability to aggressively subsidize nascent industries in emerging technologies .... for this reason, China is quickly becoming one of the most important end markets for companies levered to the EV supply chain," Thomas Weisel analyst Dilip Warrier said in a client note.

Warrier noted that China may be installing a national electric vehicle program that would provide subsidies of as much as $8,800 for each electric vehicle purchase, and has allotted $1.5 billion to fund electric vehicle development in the country.

Warrier said the joint venture is significant for Ener1's longer-term success. However, the company won't be recognizing any revenues given its minority position in the partnership; it would report any earnings in other income.

Shares of Ener1 are surging by 30.2% to $4.79 midday Tuesday. Shares of A123 ( AONE) were rising by 1.2% to $10.63, while Valence ( VLNC) was down 1.2% to $1.67. Polypore ( PPO) was down 0.9% to $45.60 after a run-up to a 52-week high of $48.20 on Jan. 14.

This joint venture is a positive for the stock as you can see," said Michael Lew of Needham & Company. "The Chinese market is focused on EVs and could arguably be a leader for this emerging industry. Ener1 beomes better positioned."
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-- Written by Andrea Tse in New York.

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