Kia Motors, South Korea’s second-largest automaker, signed a memorandum of understanding with the Indian government on the construction of its fifth overseas factory in India’s southeastern state of Andhra Pradesh, the company said Thursday.

“Through the construction of a factory in India, Kia Motors will pioneer India’s auto market, which is under the spotlight as the next growth market. We will also solidify the company’s future competitiveness on a thorough localization strategy,” the company said.

A total of $1.1 billion will be invested in the plant that will sit on 2.16 million square meters of land, the company said.

The new plant will produce 300,000 units annually, including compact cars designed for the Indian market alongside sport utility vehicles.

The global production capacity of Kia Motors will total 3.85 million units a year with the completion of the factory, the company said.

Construction is slated to begin in the second half of this year and be completed by 2019, the company said.

The plant will provide a stepping stone for Kia Motors to tap into the ever-growing Indian market, which the automaker has been hesitant to enter due to a 60 percent tariff the Indian government levies on imported cars.

India’s automobile market has high growth potential because of the country’s population of over a billion and the low distribution rate of 32 cars per 1,000 people, the automaker said.

The demand for automobiles in India is expected to reach 4.83 million units by 2020, making it the world’s third-biggest auto market, the company said.

Kia Motors is seeking to secure a new growth locomotive there to turn around declining sales.

The struggling auto firm’s first-quarter sales totaled 12.8 trillion won ($11.3 billion), up 1.5 percent from a year earlier, while its net profit dropped 19 percent on-year to 765.4 billion won, company data showed.

Kia Motors’ operating profits plummeted 39.6 percent on-year to 38.2 billion won in the first quarter, the lowest in seven years.

“Frosty ties between Korea and China, a sluggish global economy, the stronger won and deteriorating models offered are some difficulties Kia Motors is faced with,” Kia Motors said.

The auto firm sold a total of 641,686 units worldwide, including domestic sales, down 6.2 percent on-year in the cited period.

Sales in China declined 35.6 percent on-year as a result of weak consumer sentiment in China due to the deployment of the Terminal High Altitude Area Defense system here.

Sales in the US also showed a 12.7 percent decline, the company said. 

By Kim Bo-gyung (lisakim425@heraldcorp.com)