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Kia Motors will invest about $1.1bn to build its first plant in India to tap growing demand in the world’s fifth-largest car market as the South Korea company suffers flagging sales in neighbouring China due to a consumer backlash over a US missile shield deployment.
The new factory, with an annual production capacity of 300,000 units, will be built in India’s southern Andhra Pradesh state to start operations in the second half of 2019.
“Our new India plant will enable us to sell cars in the world’s fifth-largest market, while providing greater flexibility for our global business,” said Park Han-woo, the company’s president.
The investment plan came just as Kia reported a 40 per cent drop in first-quarter operating profit as South Korean vehicles were shunned by Chinese consumers angry over the US missile defence system being installed on Korean soil.
Its China performance was also hurt by a conflict with local dealers while the company’s overall profit in the first quarter was hit by a Won160bn recall cost in North America and South Korea.
Shares of Kia fell 2.5 per cent to Won35,000 on Thursday.
The company’s chief financial officer Han Chun-soo expects Kia’s trouble in China to persist for some time and said the company will try to overcome the crisis by releasing China-specific models and improving its sales force.
“The political issue is not an agenda that one single company can control,” Mr Han told a conference call. “Kia will refrain from excessively producing cars and flexibly respond to the market conditions to ease inventory burdens.”
To spur sales in India, Kia plans to leverage the supply chain network built by its affiliate Hyundai Motor, India’s second-largest carmaker by sales.
Foreign automakers are increasing their investments in India to meet growing demand from the country’s middle class as passenger car sales in the country are forecast to rise for a fourth straight year to another record this year.