BMW will spend £600m to upgrade its factory in Oxford to electric production of the Mini, in a U-turn that will provide a further boost to the UK car industry.

The plant will start production of the electric Mini Cooper and the new electric Mini Aceman crossover SUV, lifting a threat to the future of the model after the UK government agreed to spend £75m in subsidies.

The German carmaker, which has owned Mini since 2000, had decided last year to move production of the electric version to China, in a move that had provoked dismay in the British industry – particularly in a brand so determinedly British, to the point of offering an option with union jack tail lights. The factory has been making electric Minis since 2019.

Carmakers are gradually shifting production towards electric cars before curbs on petrol and diesel sales such as the UK’s 2035 ban. Shifting to zero emissions vehicles, which in practice mostly means electric cars, is seen as a crucial part of cut carbon emissions to net zero.

The U-turn, which will secure 4,000 jobs at Oxford and Swindon, where BMW makes body panels, was hailed by government ministers including the chancellor, Jeremy Hunt, who said BMW’s investment was “a huge vote of confidence in this country as a global leader in electric vehicles”.

Carmakers have pushed governments around the world for subsidies to make ths shift to electric technology, and have regularly considered moving production to cheaper countries such as China. Milan Nedeljković, the BMW head of production, said there had been genuine doubts over the future of the Oxford plant.

“It was a real tipping point,” he said. “There is a certain element of heritage, of feeling, being part of the society here, but at the same time we must come with a profitable business case. To get this business case right for Oxford was a very difficult challenge.”

BMW’s move represents the latest upturn in the outlook for Britain’s electric vehicle industry, which faced uncertainty with battery supplies and post-Brexit tariffs, as well as chip shortages after the coronavirus pandemic turmoil that hit British factories particularly hard.

Mini’s move means that most of the high-volume car factories in the UK have a confirmed future in the electric car era, although there is still a question mark over the future of Toyota’s factory in Burnaston, which makes hybrid cars, beyond 2035. However, the UK has also failed to attract new entrants such as US and Chinese startups.

BMW said the latest investment meant that its cumulative investment in UK factories in Oxford, Swindon, and Hams Hall, where it produces petrol engines, had reached £3bn. BMW also owns the Rolls-Royce luxury brand and its factory at Goodwood, West Sussex. Nedeljković said the company was working on its plans for the future of Hams Hall.

BMW’s annoucement came even though there remains uncertainty over whether UK-made electric cars will be subject to EU tariffs, and vice versa, because of rules that require batteries to be sourced from the UK or the EU. The UK and carmakers have been lobbying the EU to delay the start date for the rules to avoid adding costs to European electric cars.

Speaking beside the brightly lit finishing line, where Mini makes final checks to its vehicles, Kemi Badenoch, the UK’s business and trade minister, said: “This will only benefit Chinese companies, if we are putting tariffs on each other’s products at a time. The rules for those products were made at a different time, given the crisis in Ukraine, given the supply chain disruption post-pandemic. We need to make sure that the rules work for today.

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“Hopefully we will get something positive,” she added.

Nedeljković said: “For us, free trade and an open market is the basis for a good and prosperous development.

“We are optimistic, and hopeful we will find a good basis for manufacturing inside Europe, inside the UK.”

BMW’s investment follows a £4bn commitment from Tata to build a gigafactory in the UK supplying electric batteries, as well as £1bn from Nissan and the Chinese-owned battery company AESC to create an EV manufacturing hub in Sunderland.

The Vauxhall and Peugeot maker Stellantis last week began to produce electric vehicles (EV) at its factory in Ellesmere Port, after a £100m investment that made the site its first large-scale car plant in the UK to be dedicated solely to EVs.