Kia to Invest More Than $1 Billion to Build Auto Plant in Mexico

Aug 27, 2014 3:06 pm ET

(Updates with investment figures in second paragraph.)

Aug. 27 (Bloomberg) -- Kia Motors Corp. plans to build its first assembly plant in Mexico as the South Korean automaker follows European and Asian rivals in adding regional production.

Mexican President Enrique Pena Nieto said today the company will invest more than $1 billion in the factory and attract another $1.5 billion from Kia suppliers in Mexico. The plant will produce 300,000 vehicles a year and be completed in the first half of 2016, Kia Vice Chairman Lee Hyoung-Keun said at an event with Pena Nieto in Mexico City.

Kia’s commitment expands on Mexico’s automaking prowess. The nation’s output is poised to surpass 3 million vehicles this year for the first time, according to the Mexican Automobile Industry Association, buoyed by plant openings since November for Nissan Motor Co., Honda Motor Co. and Mazda Motor Corp.

“Having a Korean company enter Mexico will mean that practically all global automakers will be represented in the country,” Armando Soto, president of Kaso & Asociados, a Mexico City-based auto industry consultant, said in a telephone interview. “It will also trigger large investments from Korean auto-parts companies.”

Pena Nieto didn’t spell out what models would be produced at the factory, which will be built in Pesqueria, near Monterrey. That would make Seoul-based Kia the first automaker with an assembly facility in Nuevo Leon state, based on a tally compiled by the automobile trade group.

Global Investor

“Having the option of investing in any country, a transnational company as prestigious as Kia Motors chose Mexico,” Pena Nieto said at today’s event. “This shows the confidence global investors have in the present and future of Mexico.”

Kia is partly owned by Hyundai Motor Co., Kia’s larger affiliate. Economy Minister Ildefonso Guajardo said last year that Hyundai was among automakers considering building a Mexico plant.

In June, Daimler AG and Nissan Motor Co. said they will jointly produce Mercedes-Benz and Infiniti models at a new 1- billion euro ($1.3 billion) plant in Mexico. Bayerische Motoren Werke AG followed the Daimler-Nissan announcement by saying last month that it would spend $1 billion on a new Mexican factory.

The Kia plant probably will produce Forte compact cars and Rio subcompacts, which Kia currently makes only in Korea, said Ed Kim, industry analyst for AutoPacific Inc. in Tustin, California.

“Those are vehicles that have lower profit margins and would be logical candidates for Mexican production. Potentially the Soul would be as well,” said Kim, a former product planner for Hyundai. “The Rio is also the type of small, lower-priced car that could be exported to Latin American markets.”

--With assistance from Alan Ohnsman in Los Angeles.