Tata said it would invest £4bn in the site, but it is understood that the government is also providing subsidies worth hundreds of millions of pounds.
The new gigafactory near Bridgwater will be one of the largest in Europe and will initially make batteries for Jaguar Land Rover vehicles like Range Rover, the Defender and the Jaguar brands.
But the plan is to also supply other car manufacturers as well, with production at the new factory due to start in 2026.
Tata has been in negotiations for months to secure state aid for the project and the government confirmed on Wednesday that Tata had been offered a "large" incentive to site the plant in the UK. The subsidies are likely to be in the form of cash grants, discounts on the cost of energy, and training and research funding.
Mike Hawes, SMMT chief executive, welcomed the plans and said: "This is a shot in the arm for the UK automotive industry, our economy and British manufacturing jobs, demonstrating the country is open for business and electric vehicle production.
"It comes at a critical moment, with the global industry transitioning at pace to electrification, producing batteries in the UK is essential if we are to anchor wider vehicle production here for the long term.
"We must now build on this announcement by promoting the UK’s strengths overseas, ensuring we stay competitive amid fierce global pressures and do more to scale up our EV supply chain."
