Jaguar Land Rover faces the risk of delays to the first deliveries of electric car batteries from a £5.2bn government-backed factory in Somerset after construction problems.

The British carmaker is planning to rely on the Agratas factory in Bridgwater, Somerset, to supply the batteries for its new electric models. Agratas and JLR are owned by the Indian industrial conglomerate Tata.

The battery factory – only the second in the UK – is widely seen as a key step in the domestic car industry’s transition away from fossil fuel-powered vehicles. The UK government in April promised £380m in subsidies for the plant.

However, Agratas has terminated its main construction contractor, Sir Robert McAlpine (SRM), and replaced it with another, Tonroe Group Ltd (TSL). Agratas informed SRM that its services will not be required beyond the end of the month, giving only three weeks’ notice by letter.

When Tata initially announced the gigafactory in 2023 it had targeted a 2026 start date, before pushing it back to 2027. However, it is understood that the latest internal start date, of January 2028, is also likely to be missed.

Agratas has set a budget of about £800m for the construction, but the actual cost is likely to exceed that by at least £500m, according to a person with knowledge of the project. Agratas is also building a gigafactory in Sanand, western India. It is thought that Agratas’s Indian management pushed for costs in the UK to match its other project.

The budget mismatch has caused tensions as contractors, including SRM, tried to hit targets they saw as impossible to deliver, the person said. SRM was never under contract, but was working under a temporary arrangement, known as a letter of limited authority, for more than two years. SRM billed about £400m during that time, without ever reaching a contractual agreement.

It is the second departure of a leading contractor after TClarke left in March amid reports of a “strained relationship”. The departures are likely to be noted by other companies in the supply chain, and may cause concern in government over the progress of a project it has backed heavily.

The new construction contractor, TSL, a privately owned business based in Buckinghamshire, will have to get up to speed quickly with the demanding requirements for the gigafactory. These include building facilities to handle dangerous electrolyte – the liquid through which lithium ions move inside car batteries to generate electricity – as well as constructing one of the largest clean rooms in Europe, with stringent humidity controls. TSL’s main focus is in building datacentres, although it was also involved in constructing a battery factory for Sweden’s now bankrupt Northvolt.

However, several parts of the project are understood to be behind schedule. Agratas has not bought crucial parts to build a substation that will handle the electricity connection – equipment that can take two years or more to arrive. Work has not started on an important ring road, and the building itself is well behind schedule, with many milestones delayed owing to slowed purchasing decisions.

There has also been relatively high turnover of senior staff within Agratas in the UK, and some senior personnel have departed including its head of process engineering and its vice-president of global manufacturing engineering, while its vice-president of manufacturing operations will take early retirement in August.

Delays to the Agratas start of production could prove challenging for JLR, which will depend on its sister company for cells to power its new electric Jaguar and electric Land Rover models, including the already delayed electric Range Rover.

The JLR chief executive, PB Balaji, said in November: “We are running against the clock on this one. It is stressed, but we’ll do our best to reach there.”

Delays could cause significant problems for JLR in its efforts to comply with the UK’s electric car sales targets, known as the ZEV mandate. JLR executives have doubts about whether they can hit much higher targets in the next few years, potentially leaving them exposed to fines. Their warnings are thought to be a leading motivation for the UK government’s decision to water down the mandate.

A lower ZEV mandate target could remove some of the time pressure for Agratas. However, JLR has also decided to sell more hybrids rather than battery models, which might also raise questions over future demand for batteries from Somerset.

A spokesperson for Agratas said it had “determined that a different construction delivery model is needed to support the next phase of our development”.

They added: “Following a review of the project’s requirements, we have decided to transition to a new construction partner. We thank our existing construction partner for their support to date.

“This change reflects the evolving needs of the project, positioning us to deliver the next phase with the capability and focus required to meet our objectives safely, efficiently and on schedule.”

A spokesperson for SRM said: “Having successfully completed the first phase of Agratas’s battery manufacturing facility in Somerset, following extensive discussions, we have mutually agreed to part ways. We are now working closely with Agratas to support a smooth and orderly transition to a new construction partner.”

JLR declined to comment.