Hyundai Motor affiliate Kia Motors on Wednesday (2 November) said it would build a third manufacturing plant in China in order to meet “dramatically increasing” local demand and to maintain sales growth there.

The signing ceremony for the investment memorandum of understanding (MOU) to build the new Dongfeng Yueda Kia Plant 3 was held in Yancheng, Jiangsu Province attended by 50 Chinese government officials and Kia Motors representatives including Hyundai group chairman, Mong-Koo Chung.

Dongfeng Yueda Kia (DYK) Motors is the 50/50 joint venture through which Kia assembles, sells and services its vehicles in China.

The 300,000 unit plant will take Kia’s Chinese capacity to 730,000 units from the current 430,000 units at the two existing plants.

Chung said: “Kia is one of the fastest growing automotive companies in the Chinese market.

“With our third China plant, which we will begin constructing at the end of next year, Kia will be well-positioned to provide its growing Chinese customer base with stylish, safe, reliable and high-quality vehicles while also helping to further develop the local economy.”

The new plant will be located 5km (3 miles) from Kia’s second plant in Yancheng’s economic and technology development zone. The close proximity to the existing facility will enable Kia to use established infrastructure and maximise efficiency of the two plants, the automaker said.

Kia expects production to start in the second half of 2014.

Models developed to suit local needs and preferences will be built at the new plant but specific plans have yet to be finalised as Kia “continues to study the rapidly transforming Chinese automobile market”.

The city of Yanchang will give Kia 1,500,000 sq m of land and will also provide incentives such as preferential tax rates.

Kia has been one of the best performing foreign brands in China in recent years. Sales of its locally manufactured vehicles reached 101,427 units in 2007 and the company posted a 40% year on year increase in 2008, selling 142,008 units after the second DYK plant began full operation.

Kia continued its strong growth in 2009, recording a 70% year on year increase to 241,386 units.  Last year, the brand posted further double-digit growth – 38% to 333,028 vehicles.

At the end of October 2011, year to date sales of locally produced vehicles reached 341,682 units thanks to the introduction of the mid-size (D segment) K5 sedan (Optima outside Korea and China) and the sub-compact K2 (local version of the redesigned Rio).

Kia said it was confident of reaching its 2011 China sales target for locally-produced vehicles of 430,000 units.  It achieved its highest-ever monthly sales in China in September, with 43,508 vehicles delivered – including 4,001 K5 and 10,478 K2.

Kia’s Chinese market share has also grown dramatically over the past few years – from 2% in 2007 (18th in the sales charts) to 3% in 2010 (13th). At the end of last September, its market share was 3.5%, making it a top-10 automaker in China.

Parent Hyundai Motor has annual capacity in China of 720,000 units and the Hyundai group expects to reach sales of around 1,150,000 units in 2011, placing it third in China behind VW and GM.

Beijing Hyundai’s third factory is expected to commence production in early 2012 as most construction has been completed, the local National Business Daily reported at the end of last month.

The factory will produce 400,000 vehicles, enabling the joint venture to become the fourth with capacity to roll out over 1m vehicles annually. The company is counting on the Sonata – the Hyundai version of Kia’s K5 – to boost sales in China – it sold over 10,000 units in September.

“The new eighth generation Sonata will help develop the mid- to high-class brand sector [for Beijing Hyundai],” general manager Li Feng said.

Feng added the JV will release details of its new own brand later.

The JV has already started planning for a fourth plant.

According to Chinese government policy-making think tank, the State Information Centre, next year’s local automotive demand will reach 12.7m units, a 14.2% increase on 2011’s expected tally of 11.1m.

Annual demand is expected to increase to 17.9m units in 2014 and 19.6m in 2015.

According to these forecasts and the huge production capacity increases being made by major competitors, Kia had predicted that its market share in China would drop from the current 3.5% to 2.4% in 2014 if it only operated two plants.

Chung said: “We need to be very active in terms of meeting growing consumer demand in order to maintain our current positive momentum.  However, it is also essential that we further increase the emotional appeal of our products and raise our brand awareness in conjunction with establishing a strong local production system.”

“The Chinese market has been the key focus for many global automakers, and this trend has resulted in Chinese customers demanding better cars. So it’s imperative that we capture the hearts of our Chinese customers by giving them an unsurpassed ownership experience.”