Kia Motors Corp. will invest $600 million to build a second plant in China and expand its total production capacity there to 300,000 units annually by 2006, a senior executive said last week.
"We will choose the plant site this year and start building the plant in the second half of next year," CFO Koo Tae-Whan said. "We haven't decided which models we will produce, but they will be small and mid-sized cars."
Kia already has a joint-venture plant in Yancheng in eastern China. The venture, Dongfeng Yueda Kia Motor Co., will double its capacity to 100,000 units by year end, Koo said.
Some of that new capacity will be used to assemble Carnival minivans from complete knockdown kits. The plant aims to turn out 30,000 minivans next year.
Established in March 2002, the venture assembles two subcompacts - the Qianlima, a version of the Hyundai Accent, and the Kia Pride - from kits. Kia aims to sell about 50,000 Qianlimas and 7,000 Prides this year.
The Qianlima contains 80 percent local content and the Pride contains 85 percent local content, says a Dongfeng Yueda manager, which qualifies them for a lower tax rate. The Carnival also will clear the 40 percent hurdle necessary to be considered locally made by having 50 percent local content at the beginning, the manager estimated.
But it is common practice in China to boost local content by having suppliers based in China import parts and assemble components, which then count as locally produced.
Kia is the latest automaker to join the stampede to add capacity in China, where car sales surged 56 percent last year to more than 1.2 million units. Analysts expect growth to slow to 20 percent to 30 percent this year, but there was no sign of a slowdown in the first half of the year.
Sales through June surged 82.4 percent compared with the first half of 2002, to 842,800 units.
Despite a rush of new-plant announcements by foreign automakers this year, Koo said Kia is not concerned about China becoming overbuilt.
"China's future demand for cars will be big enough to meet the growing capacity in the market," he said.
Kia's controlling shareholder, Hyundai Motor Co., also is active in China. Hyundai has a 50-50 joint venture in Beijing with Beijing Automotive Industry Holding Co. that assembles the Sonata sedan, and is negotiating to set up a second plant.