Kia to build $1.6 billion factory in southern India

Kia Motors will build its first Indian plant in an attempt to overcome stagnant sales in Korea and gloomy outlooks in overseas markets like China and the United States.

Kia Motors confirmed Tuesday a plan to build the company’s fifth overseas assembly line in India, which will be able to churn out 300,000 cars a year. Initial investment will be 1 trillion won ($875 million), followed by an additional 800 billion won for a second plant if Kia’s sales in India go well.

The plant, which is expected to make small cars and sports-utility vehicles, is scheduled to be complete by 2019.

“Kia Motors is in the process of purchasing a site in India to build the manufacturing plant,” a Kia Motors spokesman said Tuesday.

“The purchase will be completed within this year and it is likely that the factory will start construction this year too,” the spokesman added.

According to Indian newspaper The Economic Times on Tuesday, Kia Motors has started the process of buying a site in Penukonda in the southern part of the state of Andhra Pradesh.

“The car manufacturing facility, a first for Andhra Pradesh, will involve two phases with a cumulative investment of $1.6 billion, with the first phase of investment amounting to about 60 billion rupees [$930 million],” an anonymous source close to the matter was quoted as saying.

India is the world’s fifth biggest automotive market, buying 2.7 million cars a year. Industry tracker IHS estimates it will become the third largest automotive market after the United States and China by 2020.

Yet, India imposes a 60 percent tariff on imported vehicles, making local manufacturing necessary for global carmakers who want to sell cars there.

Hyundai Motor entered the Indian market in 1998. It constructed a plant in Chennai that is able to build 650,000 cars a year.

“India is an attractive market because of its growth potential,” said Kang Seong-jin, an automotive analyst at KB Securities.

“It has the possibility of even becoming the world’s second biggest auto market after China,” he added. “Hyundai Motor ran its Indian plant at a 102.3 percent operation rate last year. So I think Kia Motors is trying to capitalize on the growing demand over the long term.”

Both Hyundai Motor and its smaller affiliate Kia Motors are in desperate need of new overseas markets as sales contracted sharply in major markets like China and the United States last month.

In March, Hyundai Motor and Kia Motors sold a total of 72,000 vehicles in China - a 52.2 percent year-on-year dip. It was the first time for Korea’s two big automakers to sell fewer than 100,000 units since February 2016.

Negative consumer sentiment in China due to Seoul’s decision to deploy an American antimissile system took a toll on the automakers’ local sales, analysts say.

Hyundai and Kia’s performances in the U.S. market weren’t better last month. Hyundai Motor sold 69,000 units in March, an 8 percent drop compared to the same month last year. Kia Motors recorded a 15 percent year-on-year dip by selling fewer than 50,000 units.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]