BERLIN -- Germany will award three consortiums 1 billion euros ($1.12 billion) in funding to cut automakers' reliance on Asian supply.
Securing a regional supply chain for EVs would help Germany achieve European Union goals to lower carbon emissions and cut fossil fuel consumption.
It would also strengthen the ability of the continent's automakers and battery makers to compete with Asian rivals CATL, LG Chem and Samsung.
"We have now reached a point where we can say that there is likely to be not only one battery cell consortium, but probably three," it earmarked last year to support domestic battery cell production, German Economy Minister Peter Altmaier said.
The Economy Ministry will submit all necessary state aid documents to the European Commission once it has completed its selection process, Altmaier said.
He declined to comment on which companies have the best chances of getting the earmarked funds.
Volkswagen and BMW, German battery maker Varta and Swedish battery manufacturing startup Northvolt are among the more than 30 companies that have applied for state funding from the German Economy Ministry.
France and Germany have already asked the European Commission to approve joint state subsidies for a cross-border battery cell consortium including France's PSA Group, its German subsidiary Opel and French battery maker Saft.
The European Union allows state aid under certain conditions under its rules for Important Projects of Common European Interest (IPCEI).
Europe's Energy Commissioners Maros Sefcovic and Competition Commissioner Margrethe Vestager have signaled support for the battery cell initiative.
"We hope that by the end of the year we will have clarity from Brussels," Altmaier said, adding that the industry's growing interest in the scheme showed Berlin was right to push ahead with its new industrial policy plan.
Northvolt has made two applications for German funding, one to set up its second gigafactory in Germany after one in Sweden and another to fund its battery research project with Volkswagen.
Northvolt and Volkswagen have said they plan to set up a joint venture to build a battery cell plant in Salzgitter, Germany, but did not specify how they would fund the venture.
German automakers have hesitated for years to build up their own production capabilities for EV battery cells. This has increased Asian suppliers' pricing power over European clients.
Stricter European emission rules and shifting consumer tastes have changed automakers' calculations, meaning demand for e-cars and batteries is expected to soar in the coming years.
The projected battery demand from EVs produced in Europe is more than five times the volume of currently confirmed projects in the region, business consultancy McKinsey said in a research note.
Battery demand from EVs produced in Europe will reach a total of 1,200 gigawatt hours per year by 2040, it said. This would be enough for 80 gigafactories with an average capacity of 15 gigawatt-hours per year, McKinsey said.
The German government is also funding a research facility to offer firms in Germany know-how to develop battery cells for electric cars.