Exclusive: Nissan plans $785 million north China plant, to challenge VW, Toyota: source

BEIJING Thu Jun 14, 2012 8:28am EDT

Nissan Motor staff work in a manufacturing chain at the Zona Franca Nissan factory near Barcelona May 23, 2012. REUTERS/Albert Gea

Nissan Motor staff work in a manufacturing chain at the Zona Franca Nissan factory near Barcelona May 23, 2012.

Credit: Reuters/Albert Gea

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BEIJING (Reuters) - Nissan Motor (7201.T), the biggest Japanese automaker in China, is to build a 5 billion yuan ($785 million) plant in the northeast of the country, a person with knowledge of the plan said, extending its reach in the world's largest auto market.

The plant, in Dalian city, is part of Nissan's 30 billion yuan investment in China by end-2015, vying with General Motors (GM.N) and other global automakers also looking to the emerging Asian giant for growth as more developed markets stutter.

It also illustrates how the big foreign carmakers are now venturing on to each other's turf in China to broaden their appeal. In the past decade, foreign brands have carved up China into five territories, building fiefdoms based on their local partnerships. That's now changing as the rivals set up camp in each other's backyard.

Volkswagen (VOWG.DE) has been strongest in east and north China through its tie-up with domestic leader SAIC Motor Corp (600104.SS) and FAW Group, leaving the southern market mostly to Japanese rivals. But the German brand is building its first plant in Guangdong province in the south. It said in November its market share in the south had risen to 15.8 percent from 12 percent two years earlier.

Similarly, GM, which has been making cars for more than a decade in Shanghai, recently unveiled plans for a greenfield facility in the central city of Wuhan, a Nissan stronghold, and Ford Motor (F.N) is venturing outside its southwest 'base' to build a plant in Hangzhou, near Shanghai and GM's patch.

A production base in Dalian, the wealthiest coastal city in the northeast, analysts say, would give Nissan easy access to a regional market where Volkswagen and Toyota have been making their Jetta and Corolla models for years.

"Nissan will become a major rival for Volkswagen and Toyota in north China with the new plant. It will be cheaper and faster to ship parts to Dalian compared to Wuhan as Dalian is a major port city not that far from Japan," said Sheng Ye, associate research director for Greater China at consultancy Ipsos.

Dalian had also attracted Fuji Heavy Industries' (7270.T) Subaru, which sought approval for a factory there for its ill-fated venture with Chery Automobile CHERY.UL.

GROUND-BREAKING

The Dalian plant, jointly-owned by Nissan and its local partner Dongfeng Motor Group Co (0489.HK), will have an initial capacity of 25,000 cars when it begins production in 2014, the source told Reuters. Capacity would be phased up to 120,000 by 2015 and 240,000 by 2017.

"They will be making Nissan's more upscale SUVs, sedans and MPVs in the new plant. A ground-breaking ceremony has been planned for later this month," the person said. Executives at the joint venture could not immediately be reached for comment.

"Nissan has a more diversified portfolio in China and has put out more offerings than many of its rivals already. It could bring more of the latest models into China and further expand its appeal with this new plant," said John Zeng, Asia Pacific director of consultancy LMC Automotive.

China is already Nissan's largest market even though it arrived much later than GM and Volkswagen. CEO Carlos Ghosn unveiled an ambitious target last July to boost China sales to 2.3 million vehicles in 2015, part of a mid-term business plan to raise Nissan's global market share and profit margin to 8 percent in six years.

To reach that growth target, Nissan's China venture plans to launch about 30 new products during the period, including an electric vehicle under the joint-venture brand name Venucia, said Ghosn.

Nissan sold 1.25 million vehicles in China last year, up 21.9 percent from a year earlier, twice as many as Honda Motor (7267.T), which saw its sales dip 4.5 percent. Toyota delivered 883,000 cars in China last year, down 4.4 percent.

To accelerate its China expansion, Nissan will also start making its Infiniti cars at a $315 million plant in Xiangyang in the central Hubei province in 2014 to challenge Audi (NSUG.DE), Mercedes Benz and BMW (BMWG.DE) in the luxury segment.

Car sales in China rose 22.6 percent in May from last year, extending April's double-digit gain. January-May deliveries of sedans, sport utility vehicles, multi-purpose vehicles and minivans climbed 5.5 percent to 6.33 million, according to the China Association of Automobile Manufacturers. Industry executives predict the market could grow 5-10 percent this year on strong demand in lower-tier cities.

(Reporting by Fang Yan and Ken Wills; Editing by Ian Geoghegan)

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