Nick Clegg has pledged £500M of government money to boost ultra-low-emission vehicles.
The deputy prime minister said the cash would be invested from 2015 to 2020 to support the industry.
More than £200M will be spent on extending a scheme that gives grants of £5,000 towards the cost of vehicle purchases.
A further £100M will be put into research and development work.
Cities will be able to compete for a share of £35M for schemes encouraging use of ultra-low-emission vehicles, with a further £50M available for cleaner taxis and buses.
More than £30M will be invested in charge points for electric vehicles, with the remaining money earmarked for other initiatives.
Clegg said: “The UK has the potential to emerge as a world leader in the development, design and manufacture of green vehicles.
“Owning an electric car is no longer a dream or an inconvenience. Manufacturers are turning to this new technology to help motorists make their everyday journeys green and clean.”