The UK faces the prospect of a battery “gigafactory gap” that will undermine the electric car industry unless the government offers the growing sector more help, MPs on parliament’s business committee have said.

They said the UK had a “limited window in the next three years to attract further investment into this sector” or else face the prospect of a gradual decline in the car industry and the eventual loss of hundreds of thousands of jobs.

The global car industry is gradually increasing sales of electric vehicles, and winding down production of traditional petrol and diesel models in an effort to lower climate-heating carbon emissions.

The transition has prompted concern across countries with large car industries that they could be left behind, while China’s government in particular has heavily supported its own battery car sector as it seeks to win global market share.

The UK only has one factory producing batteries at “giga” scale: a site run by the Chinese-owned AESC in Sunderland that supplies Nissan. It is capable of producing 2 gigawatt hours (GWh) of battery capacity a year.

Two more gigafactories are due to be built. The first is a much larger AESC factory in Sunderland capable of producing up to 38GWh – enough to make about 600,000 car batteries. The second is the Indian conglomerate Tata’s planned 40GWh factory in Somerset to supply batteries for Jaguar and Land Rover cars.

However, these would still leave the UK far short of the 100GWh mark by 2030 and 200GWh by 2040, which the government-backed Faraday Institution has claimed is required to prevent the automotive industry from shrinking.

The MPs’ report, published on Tuesday, calls for a particular focus on government investment to support producers of crucial parts and materials to go into batteries to keep car production in the UK and prevent reliance on imports from China, which dominates the global battery supply chain.

Liam Byrne, the Labour MP who chairs the business committee, said: “Right now, the UK is on course to secure barely half of the electric battery capacity needed by the domestic car industry alone. Unless we fix this fast, we risk the industry simply relocating to Europe or the US or becoming reliant on imports from China and elsewhere.”

The report precedes the chancellor’s autumn statement on Wednesday, in which he will detail £2bn of investment in the automotive industry over the next five years. The government is also due to publish an advanced manufacturing plan and a battery strategy this week.

Byrne said the UK had been left lagging behind rivals that had offered direct subsidies and other attractions, including lower energy costs, trained workers and help securing critical minerals.

Britain is likely to be dependent on imports of raw materials, but the MPs argued there were “strategic benefits” to be gained from supporting a “midstream” industry able to refine lithium, the key substance used in electric vehicle batteries and able to produce the valuable anodes and cathodes within battery cells.

David Bailey, a professor of business economics at the University of Birmingham, said the UK needed to do much more to support the automotive industry transition. Building a UK battery supply chain would make it easier for British cars to avoid tariffs when exported to the EU and would “help anchor battery production in the UK”, he said.

Jonathan Reynolds, the shadow business secretary, on Monday told a conference that the government needed to help the automotive industry by “simultaneously addressing … battery capacity, energy costs, charging infrastructure, the rules of origin and consumer confidence at the same time”.

The Department for Business and Trade said: “In the past few months the government has secured a £4bn investment from Tata in a new gigafactory, and £600m to build the next generation of electric Minis. This comes on top of a previous £1bn investment in an electric vehicle hub in Sunderland by Nissan and their battery supplier AESC. Taken together these major investments demonstrate that our plan for the automotive industry is working and continuing to deliver results.

“Later this week we will publish a wide-ranging advanced manufacturing plan and the UK’s first battery strategy, both of which will ensure we continue to place the UK at the forefront of global supply chains.”