Jan. 13 (Bloomberg) -- Tesla Motors Inc., the maker of luxury electric sports cars, will supply battery packs for electric versions of Daimler AG’s Smart minicars, providing an additional source of revenue.

The first order will be for 1,000 power packs this year and next, Tesla Chief Executive Officer Elon Musk said today in an interview at the Detroit auto show. The cars will be deployed in European cities such as Berlin, and some may also go to the U.S., Daimler spokeswoman Julia Engelhardt said, without elaborating.

“Assuming it works out well and we meet our cost and performance targets, the expectation would be that this is something that would be sold in tens of thousands of units per year,” Musk said. “It would be a mass-market, affordable car.”

Supplying batteries will expand products for closely held Tesla, which began delivering its $109,000 Roadsters last year and is readying a sedan in hopes of becoming the first profitable maker of electric vehicles. Daimler, based in Stuttgart, Germany, began U.S. sales of gasoline-powered two-seat Smart cars in 2008 and plans to introduce an electric model this year.

“Daimler has a lot of irons in the fire and is putting out contracts with different companies to shape its electric-vehicle strategy,” said K.G. Duleep, managing director of consulting firm Energy & Environmental Analysis Inc. “It’s difficult to tell whether Tesla has the ability supply them at high volume.”

Tesla, based in San Carlos, California, and Daimler wouldn’t discuss financial details of their contract. Daimler also declined to say how much the electric Smart cars will cost.

The battery packs for Daimler will be smaller than those in Tesla’s Roadster, and should allow the Smart cars to go at least 50 miles solely on electricity, Musk said.

More Competition

Tesla is getting more competition for its vehicles. Companies including General Motors Corp., Toyota Motor Corp. and Ford Motor Co. unveiled electric models this week at the North American International Auto Show.

The Roadster is rated by the U.S. government as being able to travel 244 miles on a full charge of its more than 900 pounds of lithium-ion batteries. The Roadster chassis is produced for Tesla in Hethel, U.K., by Group Lotus Plc.

Tesla is seeking $350 million in U.S. government loans through an advanced-technology vehicle program to help develop and build its second model, the $57,400 Model S electric sedan, due in 2011. The company also applied for $100 million loan to boost production of power systems to sell to other carmakers.

Tesla has raised at least $187 million, including more than $70 million from Musk. Other investors include Google Inc. founders Larry Page and Sergey Brin, California-based venture funds Vantage Point and JP Morgan Bay Area Equity Fund.

Tesla still intends to sell shares to the public for the first time this year, “though certainly not in the first half,” Musk said.

To contact the reporter on this story: Alan Ohnsman in Detroit at aohnsman@bloomberg.net

Last Updated: January 13, 2009 14:19 EST