Tata Group, the parent company of Jaguar Land Rover, would create up to 9,000 jobs with the creation of the giant, state-of-the-art factory.
The proposed gigafactory could be the largest single building in the UK, located near the M5 motorway at Puriton.
Some in the car industry have described the plant as the most significant investment in UK automotive since Nissan came to Britain in the 1980s.
A new "British Energy Supercharger" scheme is also thought to be part of the deal. The scheme would cut the energy bills of 300 energy intensive companies, such as those making steel and batteries.
Paul Jones, Chair of IMechE Technical Strategy Board and Chief Executive of the Northern Automotive Alliance, commented: "It is fantastic news for the automotive sector and economy.
“The UK has a long history of leadership in automotive engineering, and it is a vital industry that employs hundreds of thousands of people in high-skilled jobs.
“Ensuring the sector continues to thrive should be a priority for the Government.
“As we transition to Net Zero, exciting projects like this will help inspire a new generation of future engineers who are interested in pursuing a career that is centred around delivering a more sustainable future.”