UK increasingly hopeful of securing JLR battery factory

British ministers are increasingly hopeful of convincing Tata Motors to build a flagship battery factory in the UK, dangling a last-minute offer of higher energy subsidies to secure a deal.

Rishi Sunak’s government has offered a range of incentives worth hundreds of millions of pounds to persuade the company to build a battery site in Britain rather than Spain to supply Jaguar Land Rover’s electric cars.

But British officials believe the key will be big discounts on the huge amounts of energy needed to run a gigafactory, which would be built in Somerset, as well as the separate Tata Steel operation at Port Talbot.

A decision on Tata’s battery plant is imminent, according to people close to the discussions. One said a decision could come as early as next week.

The company asked for £500mn of financial assistance from the UK and strongly favoured the Spanish site earlier in the year despite its historical UK links.

But a recent push led by Sunak has won the Indian owners of JLR back towards building its plant in Bridgwater, with British officials saying that a better offer on energy prices had been put forward.

“The situation has been recovered,” said one minister. “It may still be in the UK.”

The deal has been viewed as a must-win by the government to support the UK’s tottering car industry, as it struggles after Brexit to pivot to making electric cars at scale.

Britain’s high energy prices compared with EU rivals have been the big sticking point and ministers are looking to increase subsidies to big energy users such as Tata through a new “British Energy Supercharger” scheme.

A consultation is under way on the scheme that would cut the energy bills of 300 energy-intensive companies — such as those making steel and batteries. The new regime will be rolled out from the spring of 2024.

Kemi Badenoch, energy secretary, has been leading talks with Tata about the new supercharger scheme; its design will have a crucial bearing on the viability of both the proposed gigafactory and the Port Talbot steel works.

The cost of the energy subsidies for heavy industry will eventually be funded through consumer bills. The total subsidy to Tata to build the gigafactory will depend on the generosity of the scheme.

The UK is also offering a one-off grant to Tata to build the battery factory from its £1bn automotive transformation fund, along with another grant to improve road connections to the proposed site near the M5 motorway.

Those close to the deal say that the offers made by the UK and Spain for the construction of the battery factory are broadly similar, but the long-term cost of energy was likely to be the decisive factor.

“The fundamental sticking point is not about the cost of the build, we have got to parity on that, it’s all about the operational costs and the high cost of energy in the UK versus other markets,” said one person briefed on the discussions.

The idea of linking a subsidy package for Tata’s battery factory and its Port Talbot steel works was agreed by Liz Truss during her brief premiership last year, in talks with Natarajan Chandrasekaran, chair of the parent company Tata Sons.

Tata Steel is expected to be given £300mn to decarbonise its Port Talbot works, a sum also earmarked for British Steel for its works in Scunthorpe, according to government insiders.

Spain has sought to woo Tata with the promise of access to some of the billions of euros in EU grants and loans the country is receiving from the bloc’s post-Covid recovery funds.

Aimed partly at accelerating a transition to cleaner energy, €3bn of the Next Generation EU funds have already been earmarked by Spain for electric vehicle projects. Tata has been considering a factory site in Aragón in the north-east of the country.

Analysis done this year by UK Steel, the industry trade body, found that steelmakers were still paying 60 per cent more for their electricity compared with German producers despite the drop in wholesale prices.

JLR is due to release an all-electric Range Rover next year, and a suite of seven battery cars as part of a £15bn electrification programme, as it aims to catch up with premium rivals such as Mercedes-Benz and BMW.

The battery plant is expected to be built alongside China’s Envision, the same company that supplies Nissan with electric car batteries in Sunderland.

Tata declined to comment.

Additional reporting from Chloe Cornish in Mumbai