Spain will use European Union funds to create a public-private consortium with VW's Spanish unit SEAT and power company Iberdrola to build the country's first factory for electric-car batteries, the industry minister said.
Reyes Maroto told an event organised by the UGT union on Thursday the consortium would be open to other members and will help Spain begin local production of electric cars.
"The project will allow the development of ... the necessary infrastructure, installations and mechanisms to autonomously and competitively manufacture a connected electric vehicle," she said.
Spain is due to receive some 140 billion euros in EU pandemic recovery funds by 2023, almost half in grants. It plans to channel a large chunk to financing major industrial projects that will help resuscitate and modernise its beleaguered economy.
Brussels is aggressively pushing for new battery production in Europe to reduce reliance on Chinese imports as carmakers ramp up production of electric vehicles to meet tougher emissions regulations.
Reuters had previously reported the government was considering turning Nissan's main car plant in Barcelona, which is due to close in December, into a battery production facility to preserve thousands of jobs.
Maroto made no reference to Nissan's factory and did not specify where the new plant would be located but said it would help SEAT, which had previously called battery manufacturing in Spain "essential", to produce electric cars at its plant in Martorell, outside Barcelona.
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