Japanese electronics makers are rapidly expanding production of lithium-ion batteries, the rechargeable cells used in mobile devices such as cell phones and laptop computers, to meet surging worldwide demand.

Matsushita Electric Industrial, maker of the Panasonic brand, said on Thursday it would build a new lithium battery plant in western Japan as part of an effort to raise production by half over the next three years.

The expansion comes in spite of a recall of 46m Matsushita lithium-ion cells in August. The batteries, made for Nokia mobile phones, were found to overheat after being recharged more than a few hundred times.

”It was a structural issue and now that it’s fixed it doesn’t present a risk to expansion,” said Koya Tabata, analyst at Credit Suisse.

Demand for lithium-ion batteries is growing 8-10 per cent a year on the back of booming sales of mobile gadgets. By expanding production, Matsushita aims to raise its roughly 15 per cent market share at the expense of segment leaders Sony and Sanyo.

Those companies are also expanding capacity, however. Sony announced plans in August for a new plant in Singapore that will eventually produce 96m units annually. Sanyo will spend Y7bn to add a fifth domestic lithium-ion battery plant next year.

Mr Tabata said entrenched relationships between battery suppliers and makers of mobile phones, the most important mobile device category, made it difficult for battery makers to steal market share from rivals.

Matsushita said its new facility would cost Y4.5bn to build before installation of new production machinery. Total investment including machines will likely be about double that figure, according to analysts.

It will be Matsushita’s third lithium battery plant after one at its main factory complex in Osaka and anther in China. The Osaka plant was damaged by fire in September and Matsushita said the new plant would reduce operating risks by spreading output to a third facility.

The new plant is due to be completed next May. The company also plans to boost production at the Osaka and China facilities to raise its total capacity to 37m units from 25m by the 2009-2010 financial year.

Matsushita estimates that worldwide demand for lithium-ion batteries will top Y670bn by 2008 or 2009. Based on the company’s present market share, the segment contributes a little over 1 per cent of its sales.

Matsushita’s shares slipped 0.7 per cent on Thursday to Y2,185, in line with a 0.6 per cent drop for the overall electric machinery sector.

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