Jaguar Land Rover could have moved car production out of Britain and cut thousands of jobs if the Government had not handed over a £380million subsidy for a new battery factory, according to newly released documents.
Papers published by the Competition and Markets Authority revealed officials feared the UK car industry would be badly damaged if the deal collapsed.
The Government announced the funding earlier this month for Agratas, Tata's battery business, which is building a huge electric vehicle battery factory in Somerset. The site will supply batteries for Jaguar Land Rover and other carmakers.
Officials from the Department for Business and Trade warned that losing the project could have pushed JLR closer to moving production abroad.
The documents said: "Over time, this systemic disadvantage could lead JLR to relocate its vehicle production closer to the counterfactual battery plant in Spain, resulting in significant job losses at JLR's UK vehicle production and its wider supply chain."
The warning was based on concerns that electric cars are cheaper to build when factories are close to battery plants. Officials believed Spain was a serious rival bidder for the investment.
The Somerset gigafactory is now expected to cost around £5.2billion, far higher than the £4billion first announced when the plans were revealed in 2023. However, JLR strongly denied it had threatened to leave Britain.
A company spokesperson said: "JLR is committed to manufacturing in the UK. We did not suggest moving our vehicle production to Spain during discussions with Government about the location of the gigafactory."
JLR was handed £380million to help keep production in the UK
| REUTERS/JLR/PAThe CMA's subsidy advice unit also questioned some of the Government's claims. Under UK law, the regulator must review subsidies above £25million.
In its response, the CMA said: "The assessment should provide more reasoning and evidence to support its conclusion that JLR potentially relocating its production could contribute to a scenario where the majority of current UK automotive production leaves the UK."
A Government source later insisted the papers only explored a "hypothetical scenario" and said there was never any confirmed plan for JLR to quit Britain.
JLR remains one of the UK's largest manufacturers, employing around 33,000 workers across the country.
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The company's owner, Indian giant Tata Sons, has also received major Government backing for its steel operations in Britain.
Tata was previously handed £500million to help modernise the Port Talbot steelworks in Wales.
Industry experts said the negotiations were typical of the global car market, where countries compete fiercely for investment.
Andy Palmer, the former Nissan executive and ex-chief executive of Aston Martin, explained how it is the nature of car companies to seek the lowest total cost of delivery.
JLR employs more than 30,000 people | GETTY"This naturally includes access to grants, and inevitably their shareholders demand that alternatives are sought and competitiveness is proven," he shared.
Mr Palmer argued Britain needed a wider industrial strategy rather than offering support only to major companies. "We need a system that backs the whole ecosystem, not just the biggest names," he said.
But a Government spokesperson defended the subsidy deal: "We value JLR's commitment to manufacturing in the UK.
"Our £380million subsidy to Agratas will increase UK domestic battery production and keep us at the forefront of the transition to zero emission vehicles."
Sales of the electric Range Rover are expected to begin later this year, while orders for Jaguar's new electric models are due to open in 2027.