* Swedish project envisioned on scale of Tesla's Gigafactory
* Aims to cater to auto industry, compete with Asian suppliers
* ABB invests 10 mln euros in initial phase (Adds investment detail, quotes, background)
ZURICH/STOCKHOLM, Sept 26 (Reuters) - Swiss engineering group ABB has joined Northvolt's project to build Europe's largest lithium-ion battery factory in Sweden to cater for expected demand growth for electric cars.
Northvolt aims to reduce reliance on batteries from China and South Korea as European carmakers come under increasing pressure to cut vehicle emissions. Batteries are the biggest single cost of an electric car and VW has called for the creation of a European supplier to compete with dominant Asian players such as Panasonic, LG Chem and China's CATL.
The agreement between ABB and Northvolt covers a supply and technology partnership as well as collaboration on research and product development. ABB Technology Ventures (ATV) will support the initial phase of the project with a 10 million euro ($11.8 million) investment, it said.
Former Tesla executive Peter Carlsson's Northvolt wants the Swedish plant to rival the scale of the U.S. electric carmaker's Gigafactory in the Nevada desert, targeting annual cell production equivalent to 32 gigawatt-hours by 2023.
The factory is expected to start production in 2020. A demonstration line will be ready by 2019, ABB said in a statement.
Carlsson's vision comes against the backdrop of automakers such as BMW, Daimler, VW and Renault-Nissan all planning a rapid ramp-up in electric car production in the coming years.
VW, for instance, plans to invest more than 20 billion euros in zero-emission vehicles by 2030 to challenge pioneer Tesla in creating a mass market.
Carlsson told a press conference on Tuesday that between 80 million euros and 100 million euros is needed to fund the Swedish factory's pre-production line. That represents the first tranche of a total $4 billion in fundraising targeted in March.
More deals are expected in the near future, Carlsson said on Tuesday. "I can't say exactly when we will announce them, but we are in a number of different parallel discussions," he said.
ABB intends to supply robotics, automation and electrification solutions for the project.
Northvolt has been considering two Swedish cities -- Vasteras and Skelleftea -- for the factory's location and is expected to announce its decision in mid-October. ($1 = 0.8454 euros)
Reporting by Michael Shields and Johannes Hellstrom; Editing by David Goodman