South Korea's Kia Motors Corp is expected to pick a site next month for its first factory in India, stepping up plans to start making cars in one of the world's fast-growing auto markets, two people familiar with the matter said.
The move would enable Kia to leverage the existing supplier base of its affiliate Hyundai Motor Co, India's second-biggest automaker by sales. The proposed factory would start production in 2019 and eventually have capacity to make 300,000 Kia vehicles a year, one of the people told a major bet for a firm that sold 3.05 million vehicles last year.
The Korean pair, jointly the world's No.5 carmaker, are chasing new business after missing annual targets in 2015 for the first time since the 2008 global financial crisis. Their combined sales fell 2 per cent in first-half 2016, hit by weakness in markets like China, Russia and Brazil.
India is likely to become the world's third-largest car market by 2020, according to IHS, up from fifth place now, with annual sales nearly doubling to about 5 million vehicles from 2.7 million in 2015.
The size of Kia's investment has yet to be decided, one of the people said, declining to identify which models will be produced at the factory. Kia is best known as a maker of relatively inexpensive cars, like the Rio sub-compact.
Three sites are under consideration for the plant, and Kia may announce the plan in September after deciding on a location in August, the second person said.
The people spoke on condition of anonymity because the project was confidential.
The states of Andhra Pradesh, Maharashtra and Gujarat have all been wooing Kia, according to two other people with knowledge of the matter. One of the two, an official with the Andhra Pradesh administration, said the state - which neighbors Tamil Nadu, home of Hyundai's existing plants near Chennai - is the frontrunner.
Kia said in a statement to Reuters on Thursday that it was "continually evaluating potential locations for overseas manufacturing facilities, including India, to secure additional engines for future growth. However, as of now no concrete plans have been finalised."
Hyundai started India production nearly two decades ago and has two factories in India that make cars for the domestic market and for export to Europe and elsewhere.
The firm trails only Maruti Suzuki India Ltd in sales in India, and has an extensive service and dealer network that gives it an advantage over global rivals that have struggled to build market share including General Motors, Toyota Motor Corp and Volkswagen.
Kia's South Korea factories accounted for 57 per cent of its sales last year. It also has plants in China, the United States and Slovakia, and its first Mexico factory began production earlier this year.
For the time being most cars sold in India are small. Hyundai sells several low-priced vehicles in the country, which could present a challenge in terms of market positioning for Kia, which would not want to cannibalise Hyundai sales.
Hyundai shares parts and vehicle underpinnings with Kia, which Hyundai bought at the height of the Asian financial crisis in 1998. Differentiating their brands has been a challenge, as they compete in similar segments and markets.