As hybrid sales pick up speed and these once-thought elitist vehicles quickly become commonplace on the road, manufacturers are working overtime to commercialize the next fuel-saving powertrain technology.

Some consumers aren’t idly waiting for the next generation of plug-in hybrids, such as the Ford Escape and Toyota Prius, to come to market. They’re taking it upon themselves and are shelling out upwards of $10k for do-it-yourself conversion kits.

However, while plug-ins are an incremental improvement over hybrids for better fuel economy– reportedly as much as 50 percent more in some vehicles – even more impressive mileage numbers can be had from the extended range electric vehicles that are peering over the horizon.

General Motors is widely promoting the Chevrolet Volt as the first extended range electric vehicle to hit the streets. But Chrysler’s ENVI (short for environment) group has been working at breakneck speed for the past year to get this same technology in cars and to market.

Extended range electric vehicles are like hybrids in that they have two engines -- typically an electric motor and a gasoline engine – driving the vehicle. They’re also like plug-ins in that the car owner can plug the vehicle into a standard 120v outlet to charge the electric battery instead of relying on the gasoline engine and regenerative braking for recharging.

However, unlike plug-in hybrids, the gasoline engine in extended range vehicles is smaller than the lithium ion battery, and it never propels the vehicle. Instead, the wheels are always turned by the electric motor.

The sole purpose of the gasoline engine is to charge the lithium ion battery that powers the larger electric motor, and it only kicks in when the battery charge is nearly drained.

Chrysler is calling this a “paradigm shift” in powertrain development.

“The primary source of [vehicle] propulsion used to be the internal combustion engine,” explains Chrysler spokesperson Nick Cappa. “Now it will be the electric motor.”

It may be new in the automotive industry, but it’s hardly new in the transportation industry. All locomotives in the US are the prototypical extended range electric vehicle, says Cole Quinnell, spokesperson for Chrysler.

“All the trains in the US are electric,” says Quinnell “Their diesel engines are just used to generate the electricity that is used to drive the locomotive.”

Ford has also demonstrated this same design in its  plug-in hybrid Edge concept vehicle. However, the Edge prototype uses a hydrogen fuel cell to recharge the lithium ion battery pack.

Quinnell says the next goal will be all-electric, but until that milestone is reached, this powertrain harbors the promise to deliver the best of both worlds: electric-only for the first 40 miles  (depending on the car and driving patterns) and high gas mileage for longer trips.

This design offers a significant improvement over conventional plug-ins. The plug-in Prius that will go on sale in 2009 has an all-electric range of only 7-10 miles before the gasoline engine needs to kick in.

And by using the gasoline engine to charge the battery, drivers aren’t tied to an electric outlet. But the ability to charge the engine overnight means that the car will be able to operate for a few cents per mile. And if a driver’s daily driving needs are less than the 40-mile range of the vehicle, he or she  may never have to fill up a tank of gas.

“It’s a step toward removing gasoline from the equation,” explains Cappa, “and it almost completely removes cars from the emissions equation.”

This advanced powertrain will be commercially available in three to five  years, according to Cappa. There are prototypes currently on the road, but he’s opting not to name names.  However, this new powertrain could appear in a new model or an existing one, he says.

At a recent interview with the Motor Press Guild in Los Angeles, Chrysler president Jim Press revealed that the company is demonstrating three “plug-ins” to dealers later this month.

Quinnell declined to state which vehicles Chrysler is demonstrating, but said they’re extended range electric vehicles and all-electric vehicles.

“From this cast of vehicles, one or more will come to production,” says Quinnell, suggesting that Chrysler may be further along the development path than  it initially indicated.

The biggest barrier to commercialization is lithium ion battery that is rumored to be powering the electric motor.

Lithium ion batteries are not only expensive, they’re unstable. In laptops, they have a nasty habit of bursting into flames and burning users.

The 2,380-pound all-electric Mitubishi i-MiEV uses a 22-cell lithium ion battery, but the Japanese government provides significant subsidies to make these cars more affordable.

However, the U.S. doesn’t have that same luxury.

“Now we’re tasking battery manufactures to come to a new level and are working with several suppliers to make that happen, Says Quinnell of Chrysler’s strategy to tackle price, stability, and supply issues.

Compounding the complexity is the warranty issues. In California, batteries for hybrid vehicles must be warranted for 150,000 miles while the federal requirement is only 100,000 miles.

It’s a concern significant enough to make hybrid front-runner Toyota to strap two nickel-hydride batteries into their next-generation hybrid Prius rather than risk the costs associated with lithium ion batteries.

But given the energy gains, it’s a risk that might be worth taking.

However, Quinnell stresses that they have not confirmed their use of lithium ion batteries in any of their upcoming vehicles.