Under the plan, announced by the government and Tata on Wednesday, the company will build its first gigafactory outside of India in Britain with an investment of 4 billion pounds ($5.2 billion), creating up to 4,000 jobs and producing an initial output of 40 gigawatt hours.

Prime Minister Rishi Sunak's government has declined to say how much financial support it promised in order to secure the investment and fend off Spain, which had also lobbied to win the project. The BBC said the government would provide subsidies worth hundreds of millions of pounds to Tata.

Britain has lagged European rivals in building electric vehicle (EV) battery gigafactories, with more than 30 planned or under construction across the European Union. Britain currently has one small Nissan plant and another in the works.

"Tata Group's multi-billion-pound investment in a new battery factory in the UK is testament to the strength of our car manufacturing industry and its skilled workers," Sunak said in the statement.

The new plant is expected to be built in Somerset, south-west England, while Jaguar Land Rover's UK factories are based near Birmingham, central England.

Production at the factory, which is set to supply JLR's future battery electric models, including the Range Rover, Defender, Discovery and Jaguar brands, is due to start in 2026, the government said.

Domestic production is vital for automakers which rely on heavy batteries being built near their car plants.

With an initial output of 40 gigawatt hours, Britain said the factory would provide almost half of the battery production needed by 2030. The Faraday Institution has projected UK battery demand to reach over 100 GWh a year by that time.

"With this strategic investment, the Tata Group further strengthens its commitment to the UK," Tata Sons Chairman N Chandrasekaran said in the statement.

SHOT IN THE ARM

Mike Hawes, head of Britain's auto industry group SMMT, said the investment was a shot in the arm for the UK.

"It comes at a critical moment, with the global industry transitioning at pace to electrification, producing batteries in the UK is essential if we are to anchor wider vehicle production here for the long term," he said.

Andy Palmer, former CEO of Aston Martin and current chairman of EV battery maker InoBat, told BBC Radio government subsidies were needed to keep Britain competitive.

"Almost every car producing nation in the world (is) offering a lot of incentives in order to ensure that they preserve the integrity of their car industry," he said.

Britain has expressed concerns at the United States' Inflation Reduction Act, which promises hundreds of billions of dollars of subsidies to green industries.

Finance minister Jeremy Hunt, who has previously said Britain doesn't have large sums of money for similar subsidies, said he wouldn't get into commercially sensitive topics but acknowledged Britain's need to attract big projects.

"We're in competition with countries all over the world for these big investments," he told broadcasters.

While Europe as a whole is battling for investment in the battery sector due to stiff competition from China, the striking failure of startup Britishvolt in January underlined the challenges in establishing a home-grown industry in Britain, where there is a shortage of suitable sites for such plants.

Homegrown battery production will also help automakers comply with post-Brexit trade rules that will require them to source more electric vehicle components locally in order to avoid tariffs on UK-EU trade from 2024.

Britain has also set net zero goals including a ban on the sale of new petrol and diesel cars from 2030.

Tata Motors shares rose nearly 2% on the news, outshining the broader index in India which was up 0.1%.

($1 = 0.7716 pounds)