Jaguar Land Rover owner Tata Motors has asked the UK government for over GBP500m in state subsidies to build a battery factory in Somerset, media reports said.

The Guardian said it understood Tata had asked for the money in the form of grants and support packages such as assistance for energy costs and research funding.

The Financial Times, which first reported the GBP500m figure, said the carmaker was choosing between a potential site in Somerset and another in Spain.

Spain had been offering large grants to companies considering battery production, hoping it could attract the new industry with the potential for cheap solar power.

The Guardian said the decision on where JLR, Britain’s biggest carmaker, sources its batteries was seen as a key test of the strength of the government’s desire to sustain a large car industry.

One person with knowledge of JLR’s strategy reportedly said it was likely a final decision would come within the next two months. “We may be already past added-on time in extra time,” the person said. “If JLR, as the UK’s biggest motor manufacturer, can’t make a business case to build electric batteries in this country, who else is going to build batteries in this country?”

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By GlobalData

The person reportedly said the UK government had offered JLR a funding package which was larger than those from rivals in the EU, the person said. However, higher energy costs for industry than other European nations were a key issue, given the needs of a gigafactory.

The Guardian said other industry sources had suggested the Tata gigafactory talks were linked to those on support for the conglomerate’s steelworks at Port Talbot. The government had offered GBP300m to help the works upgrade to lower emission stechnology.

The report noted Tata Motors CFO, PB Balaji, said last month the company was planning a plant in India and another in Europe to produce battery cells. JLR was unable to say whether the reference to Europe included the UK.

A senior car industry source told The Guardian there was “no financial logic” to JLR supplying its UK factories with batteries from Spain as the cost of transporting the batteries by sea and road would be likely to negate any savings from cheaper labour. “There is zero arbitrage,” the source reportedly said. “I think they are just positioning to get money.”

The newspaper noted a GBP500m subsidy would represent a very large investment for the UK government in a single project. Its automotive transformation fund, the key vehicle for supporting the UK industry’s shift from internal combustion engines to electric vehicles, is only worth GBP1bn in total.