Jaguar Land Rover would have considered moving car production out of the UK and slashing jobs if not for a £380m subsidy for its sister battery company, government officials claimed privately.

Officials at the Department for Business and Trade (DBT) warned in December that Britain’s largest automotive employer may have triggered an exodus from the UK car industry, according to state aid documents prepared by the competition regulator.

JLR is owned by Tata Sons, an Indian conglomerate that also controls Britain’s largest steelmaker. Tata Steel has received £500m to upgrade its Port Talbot steelworks. Earlier this month the government also extended a grant of £380m to Agratas, Tata’s new business, which is building a battery “gigafactory” in Somerset to supply JLR and other carmakers.

The document revealed that the planned total investment for the vast factory had increased to £5.2bn, up from £4bn when it was initially announced in 2023.

It also reveals government’s warnings that, without the subsidy, Agratas could locate its European factory in Spain, eventually leading to JLR moving production from Britain because it would be cheaper to make electric cars nearer the battery plant.

The document said: “DBT explained that, 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.”

JLR employs 33,000 people in the UK. It makes its flagship Range Rover and forthcoming Jaguar models in Solihull, in the West Midlands, and also produces models such as the Discovery Sport in Halewood, Merseyside.

A JLR 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.”

Under UK law any government authority must consult the Competition and Markets Authority’s subsidy advice unit when awarding sums greater than £25m. However, the unit appears to have had doubts over whether the government’s dire assessment of the future of the British car industry was sufficiently justified.

The CMA wrote: “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.”

It is unclear whether a threat for JLR to leave would be realistic, and a government source said the assessment was only considering a “counterfactual” that did not happen. The Land Rover and Jaguar brands are seen as luxury vehicles that trade heavily on their British heritage.

Des Quinn, a national officer for the Unite union, which represents JLR workers, said: “It’s good to see that the government were on the right side to support the UK car industry.”

Senior JLR executives have previously stressed Tata’s commitment to the UK, although the company does manufacture some models exclusively in other countries, such as the Land Rover Defender built in Slovakia.

Andy Palmer, a former chief operating officer at Nissan and then chief executive at Aston Martin, said: “It is the nature of car companies to seek the lowest total cost of delivery. This naturally includes access to grants, and inevitably their shareholders demand that alternatives are sought and competitiveness is proven.”

Palmer, who now runs Palmer Energy Technology, a battery energy storage company, said the UK approach to subsidies “needs root and branch renovation”. He said: “We need a system that backs the whole ecosystem, not just the biggest names.”

JLR has been slower than some other rivals to produce electric cars. It has delayed its long-awaited electric Range Rover, as well as the launch of Jaguar as an all-electric brand. It is understood sales of the Range Rover will start this year, while orders for the first new Jaguar will start in 2027.

A government spokesperson said: “We value JLR’s commitment to manufacturing in the UK. Our £380m subsidy to Agratas will increase UK domestic battery production and keep us at forefront of the transition to zero-emission vehicles.”

Agratas declined to comment.