(Reuters) – U.S. electric car manufacturer Tesla (TSLA.O) is in talks with the leaders of the regional government of Valencia in Spain to make an automotive investment, a source close to the discussions has told Reuters.

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A spokesperson for Valencia’s regional government told Reuters it had held meetings and conversations with an unidentified company about a “large automotive investment”, but declined to give more details, citing the confidentiality of the negotiations.
A separate source confirmed the company concerned was Tesla.

Spanish business newspaper Cinco Dias cited sources as saying the investment would be a car factory and its total size could reach 4.5 billion euros ($4.83 billion). Reuters was unable to confirm the likely investment size, nor type of investment.

In a statement, the Valencian government denied that there was an agreement sealed with Tesla. Tesla did not immediately respond to a request for comment, while Spain’s central government declined to comment.

Spain is Europe’s second-largest car producer, and is using European Union COVID pandemic recovery funds to attract carmakers to invest in the manufacture of both batteries and electric vehicles. The EU plans to phase out thermal cars.

German carmaker Volkswagen said last year it would invest 10 billion euros to build a 40 GWh battery plant in Sagunto, near Valencia, with production to start by 2026.

Valencia, in eastern Spain, is also home to a car manufacturing facility for Ford, which plans to start producing electric vehicles there.

At present Tesla’s only European car factory – critical to Tesla Chief Executive Officer Elon Musk’s stated ambition to vanquish European market leader Volkswagen (VOWG_p.DE) – is in the German state of Brandenburg.

It was constructed last year and by February this year was producing 4,000 cars a week, the company said.

Musk said in May that the automaker would probably pick a location for a new factory by the end of this year, without being drawn on where.

Also in May, he attended a “Choose France” investment summit in Versailles, near Paris, where he met French President Emmanuel Macron and said he was confident Tesla would make “significant investments” in France in the future.

Tesla has made no mention to date of plans to invest in Spain. However last year, Musk suggested in a tweet that Spain should “build a massive solar array… Could power all of Europe”.

Spain’s Prime Minister Pedro Sanchez responded – also on Twitter, which Musk owns – “Time is now. Let’s get it right. Come and see. We welcome investors in Spain.”
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Reporting by Inti Landauro, Belen Carreno and Joan Faus, Editing by Aislinn Laing, Jan Harvey and Sharon Singleton