Chemicals company Johnson Matthey has scrapped plans to capture a slice of the market for electric car batteries in a surprise move that saw its shares tumble up to 20%.

It said rivals were too far ahead in the technological race, and the battery chemicals arm would go up for sale.

Johnson Matthey is a major producer of catalytic converters that clean exhaust emissions from petrol and diesel cars.

But with the pending ban on such cars, it needs alternative revenue sources.

The company is thought to have spent hundreds of millions of pounds trying to commercialise a chemicals project called eLNO, aimed at improving the efficiency of batteries.

There were high hopes the company would play a key role in helping the UK develop a large-scale electric battery manufacturing sector.

But chief executive Robert MacLeod, who also announced on Thursday he would step down next year, said the potential returns from the battery division could not justify further investment.

He said: “This decision will allow us to accelerate our investment and focus on more attractive growth areas, especially where we have leadership positions such as in hydrogen technologies, circularity and the decarbonisation of the chemicals value chain,”

Development of better-performing lithium-ion batteries is key to producing electric cars that can travel further on a single charge. The market is dominated by companies in China, South Korean and Japan.

An exit from the market would more strongly tie Johnson Matthey’s fate to the internal combustion engine at a time when the future of transport looks to be electric, said Hargreaves Lansdown analyst Laura Hoy.

“Ultimately the group will be starting over from square one as it looks for ways to change alongside the new greener auto industry,” she said.

Charlie Bentley, analyst at Jefferies, said that while the development of hydrogen transport will grow, “it is very hard to believe these can be sufficient revenue drivers and replace the very significant earnings” from Johnson Matthey’s current operations.

Mr MacLeod is being replaced in March next year by Liam Condon, the head of Germany’s Bayer crop science unit.

“After nearly eight years as chief executive, the time is right for me to move on. I am confident in our future growth prospects,” said Mr MacLeod.