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UPDATE 1-VW's Scania backs Northvolt's $5 bln Swedish battery plant

* Scania to put $10 million into $4 billion project

* Skelleftea plant intended to rival Tesla's Gigafactory

* Scania signs deal to buy future Northvolt truck batteries (Adds Northvolt and Scania CEO's comments, background)

STOCKHOLM, Jan 25 (Reuters) - Volkswagen-owned truckmaker Scania is to invest 10 million euros in a 4 billion euro ($5 billion) project to build Europe's biggest battery cell plant in northern Sweden.

Sweden's Northvolt, whose CEO Peter Carlsson used to work for Tesla, is racing against rivals such as South Korea's LG Chem to set up large-scale battery cell plants across Europe, where automakers and industrial firms have so far been largely reliant on Asian imports.

European automakers such as BMW, Daimler , Volkswagen and Volvo Car Group are all set to ramp up electric car production in the coming years.

Northvolt and Scania said on Thursday they had agreed to develop and commercialise battery cell technology for heavy commercial vehicles; Scania's investment will go toward building a demonstration production line and research facility for Northvolt in Skelleftea, northern Sweden.

The firms have also struck a deal for future purchases of battery cells, their joint statement said.

Northvolt's Carlsson wants the Skelleftea plant to rival U.S. electric carmaker Tesla's Gigafactory in the Nevada desert, and aims to produce a total battery storage capacity of 32 gigawatt-hours a year by 2023.

Northvolt's immediate aim is to build a separate demonstration line in the Swedish town of Vasteras.

Carlsson told Reuters he expected to secure initial financing of 80-100 million euros for that project during the first quarter before embarking on the far larger fund-raising for the Skelleftea plant.

Scania CEO Henrik Henriksson said he hoped to see the first trucks stemming from the partnership being produced with batteries from the demo line next year, with volume production of batteries for Scania trucks and buses from Skelleftea likely to follow.

"If we are successful in developing the kinds of products we aim for in this partnership, then this will be an important part of our supply chain," he said in an interview at Northvolt's headquarters in Stockholm.

Last year, Northvolt signed partnership deals with Swiss engineering group ABB and Danish wind turbine maker Vestas, but it still needs to raise the vast bulk of the financing required for the Skelleftea plant.

"We are involved in a number of processes. It has taken slightly more time than we expected and that is due to the fact that these are pretty big strategic decisions," Carlsson said. ($1 = 0.8063 euros) (Reporting by Niklas Pollard; editing by Anna Ringstrom and Kevin Liffey)