In June, ACC -- a joint venture including automakers Stellantis and Mercedes and French oil and gas giant TotalEnergies -- said it was pausing construction of the Termoli plant in Italy, along with another in Germany, while it updated the technology behind its batteries.

ACC's plan for the gigafactory in Italy's eastern Molise region envisages a total investment of around two billion euros, including at least 250 million euros from the EU's recovery fund.

Industry Minister Adolfo Urso told ACC and union representatives at a roundtable meeting in Rome that EU funds would be "re-deployed towards other investments consistent with the sector's energy transition", the sources said.

The minister said the government stood ready, however, to allocate state funds should ACC present a new industrial plan for Termoli.

The move comes amid tensions between Stellantis and Prime Minister Giorgia Meloni's right-wing government, which accuses the car manufacturer of moving production out of Italy to lower-cost countries.

Stellantis brands include historic Italian carmakers such as Fiat and Alfa Romeo.

ACC said Tuesday it "intends to confirm its development plan and strategy for building gigafactories in the first half of 2025 in Italy and Germany".

It said it had been "ready to start construction" of the Termoli plant "at the end of June 2024, but has had to deal with a "slower than expected transition to electric mobility that led to an evolution in the technology demanded by the customers".

Emissions from fossil fuel-powered cars are a key driver behind deadly climate change.

Europe intends to stop selling new fossil fuel cars in 2035 and encourages Europeans to start driving electric cars, but uptake of battery-electric vehicles has been hobbled by their high prices and limited range.