LONDON (Reuters) - Mercedes-Benz and U.S. battery startup Factorial are working on a solid-state battery that should dramatically increase electric vehicle range and be ready for production by the end of the decade, the companies said on Tuesday.

The new battery, dubbed Solstice, should extend EV range about 80% above today's average, with an energy density of 450 Watt-hours per kilogram, the companies said in a statement.

Solid-state batteries have been billed as a game-changing technology for EVs, as they should reduce fire risk and allow for lighter, lower-cost cars than can travel further on a single charge.

But they have proven harder than expected for major automakers and battery making partners to develop at scale.

Auto groups are urgently seeking ways to cut costs and boost EV range as sales have stagnated in Europe in particular.

Factorial has already developed a quasi-solid-state battery that automakers including Mercedes are testing and should be in EVs on the road in 2026.

Mercedes has invested in Factorial, which raised $200 million in 2022, alongside rivals Stellantis ( STLA ) and Hyundai.

Factorial developed quasi-solid-state batteries first because they can use similar production lines to conventional lithium-ion batteries, meaning they can scale up faster, CEO Siyu Huang told Reuters.

In a solid-state battery, the liquid electrolyte through which the electrical charge passes should be replaced with a solid substitute, reducing fire risk and shrinking battery pack size.

Huang said that solid-state batteries would not require expensive, heavy cooling systems needed for today's battery packs, allowing automakers to further reduce costs.

"We're not just focused on the cost of (battery) cell, but the cost of the overall vehicle," she said.

The challenges of developing solid-state batteries include poor performance in cold weather and the battery pack's tendency to expand.

Mercedes Chief Technology Officer Markus Schaefer told Reuters that Factorial's solid-state batteries could provide a 40% improvement in energy density over the German premium automaker's high performance batteries today.

This would enable Mercedes to either significantly reduce EV battery pack size - batteries are an EV's most expensive and heaviest component - or provide long-range electric cars for those who want them.

He added that lighter batteries would allow Mercedes to use steel for EV bodies instead of far more expensive and carbon intensive high-strength aluminium.

Mercedes is also working with Taiwanese battery maker ProLogium, in which it has invested, on solid-state batteries and is researching high-silicon anodes as an alternative solution to increase EV battery density.

"There are some challenges that you have to get under control, but ... we have great engineering solutions to address them," Schaefer said, adding that he believed Factorial's goal of developing Solstice at scale by the end of the decade was realistic.