LONDON/DETROIT, Jan 16 (Reuters) - Volkswagen, whose drive to develop a "solid-state" electric car battery with U.S. startup QuantumScape has been dogged by delays, is casting its net wider in pursuit of the potentially game-changing technology.

The German auto giant is holding talks with France's Blue Solutions, which already produces solid-state batteries for Daimler electric buses, about adapting the design for cars, a source with direct knowledge of the discussions told Reuters.

VW and Blue Solutions aim to reach a joint development agreement in the coming months, according to the source who asked not to be identified as the talks are private.

Volkswagen's move to widen its options in the field points to the array of technical hurdles holding back wider development of solid-state technology, seen by its backers as the "holy grail" of EV batteries, promising longer driving ranges and shorter charging times than traditional lithium-ion packs.

VW said its venture with QuantumScape was on track and declined to comment when asked about any discussions with Blue Solutions.

A spokesperson for Blue Solutions, a unit of French conglomerate Bollore, confirmed that it was working on a battery for passenger cars and said it had signed development deals with BMW and another company, and was in talks with a third, but declined to identify the others.

VW, Toyota, BMW and other global automakers are vying to crack the conundrum of solid-state batteries, which remain technically elusive despite decades of research and billions of dollars of investment.

"A lot of promises haven't been delivered and several automakers and investors have been burnt," said Rory McNulty at consultancy Benchmark Mineral Intelligence. "There's loads of really good verified data and technology, but can they (the industry) do it reliably, at scale?"

Blue Solutions, for its part, faces stiff challenges to radically bring down the four-hour charging time required by its current batteries, which is feasible for buses parked overnight in depots. The company's spokesperson told Reuters it was working on a passenger car battery with a charging time of 20 minutes, and aimed to construct a "gigafactory" for it by 2029.

The sector's lack of commercial success has dampened market enthusiasm; the amount of global venture capital deal activity in solid-state battery companies fell 72% last year to $146 million, according to data from PitchBook.

"Investor interest in solid state batteries has waned. They are questioning whether the risk of solid state is worth it," Ibex Investors partner Jeff Peters said.

QUANTUMSCAPE: STILL A LOT OF WORK

Solid state ideally envisions replacing the liquid electrolyte though which the electrical charge passes in lithium-ion EV batteries with a solid substitute, thus reducing a fire hazard and shrinking the size of battery packs, and using lithium metal for its negative terminal to boost performance.

Gauging precisely the right combination of chemicals and materials so they don't react adversely with each other is a minefield, though.

QuantumScape's venture with its top shareholder VW, which has invested $300 million in the startup, is an example how solid-state technology has failed to live up to its initial promise.

The development deal signed in 2018 envisaged solid-state powering Volkswagen EVs by 2025, enabling the e-Golf to more than double its range to 750 km. When QuantumScape subsequently went public via a reverse merger with a special purpose acquisition company in New York in 2020, it said it was aiming for commercial battery production in 2024.

Yet mass commercial production remains a distant prospect, even after QuantumScape shipped its first prototypes to VW and other prospective customers in late 2022, the start of what is typically a multi-year process of testing and certification.

Furthermore, the battery isn't pure solid state since it uses a liquid electrolyte though uses ceramic to separate the positive and negative terminals.

"We still have a lot of work to do," QuantumScape's CEO Jagdeep Singh told Reuters. "The prototype is meant to show the core functionality is there, not that the cell is fully ironed out in terms of all the different defects that can be introduced during the production process."

QuantumScape's shares, which hit a peak of $132.70 in December 2020, have since sunk to $7.37, giving the company a market value of about $3.6 billion. It has not said when it expects high-volume commercial production. Goldman Sachs said this was likely in the latter part of the decade.

QuantumScape said in a regulatory filing to the U.S. Securities and Exchange Commission last October that it had missed commercialization timeline milestones envisaged in the 2018 deal with VW, and that the German automaker thus had the right to terminate the joint venture should it choose to.

TOYOTA FLAGS BREAKTHROUGH

Volkswagen and QuantumScape aren't the only players that have pared their ambitions as they grapple with the technical complexities of solid state.

Toyota, the world's biggest automaker ahead of VW, had targeted a 2025 production startup date for its solid-state batteries, but said in June it now does not expect to produce the cells at scale before 2027 or 2028.

The Japanese company nonetheless said it had achieved a technical breakthrough, without providing details beyond a projected driving range of 750 miles or more and charging time of 10 minutes.

Several other companies have plans to roll out solid-state batteries including Chinese battery leader CATL, LG Energy Solution, Solid Power, ProLogium, Honda and Nissan. (see accompanying FACTBOX)

EV market leader Tesla is an industry outlier in not having detailed any solid-state battery development plans.

A key issue solid-state scientists have been grappling with is the impact of introducing lithium metal for the anode.

Lithium metal can dramatically lift performance, but often sparks reactions with the solid compounds, including creating dendrites, spiky formations that create cracks and imperfections and can ultimately short-circuit a battery.

Battery makers, automakers and researchers have tried using a variety of substances for the solid electrolyte in three main categories: polymers, sulfides and oxides.

Some companies have already rolled out partial versions of solid-state batteries that offer some benefits of the technology. China's EV firms Nio and Seres have both launched EV models with "semi-solid-state" batteries which have both solid and gel-like electrolyte components but do not use lithium metal anodes.

(Reporting by Eric Onstad in Lodnon and Paul Lienert in Detroit; Additional reporting by Ben Klayman in Detroit and Zoey Zhang in Shanghai; Editing by Veronica Brown and Pravin Char)