Nissan Motor Co. Ltd. will invest $2.6-billion reais ($1.5-billion U.S.) in a new plant in Brazil as global auto makers ramp up production in Latin America's largest economy.
The plans, which follow an announcement earlier this week by Nissan's French partner Renault SA, that it will expand an existing Brazilian plant come amid forecasts that the country will overtake Japan as the world's third-largest automotive market after China and the U.S. by 2015.
The new Nissan plant will have a capacity of 200,000 vehicles a year and will start operations in the second half of 2014, Renault/Nissan chief executive officer Carlos Ghosn told reporters in Rio de Janeiro on Thursday.
The Renault-Nissan alliance will face fierce competition in a market dominated by the world's largest auto makers, led by Fiat SpA, Volkswagen AG, General Motors Co. and Ford Motor Co.
The group's investment plans come at a time when the Brazilian automotive market is slowing down, with production falling 19.7 per cent in September compared with August and sales falling 4.9 per cent.
After breakneck growth of 7.5 per cent in 2010, analysts are predicting Brazil's economy will expand at less than half that pace this year on the back of the euro zone crisis and efforts by the central bank to bring inflation under control.
Most analysts remain bullish on the longer-term outlook for Brazil's automotive market. Consultancy Roland Berger forecasts that automotive sales in Brazil will double by 2020 to 6.6 million units per year, and that the market will become larger than Japan in four years.
Mr. Ghosn earlier this week announced a $500-million-real expansion of Renault's existing plant in Curitiba in southern Brazil, bringing the group's combined planned new investments in Brazil to $3.1-billion reais.
The new Nissan plant and the expansion of the Renault plant will bring the group's combined capacity in Latin America's biggest car market to 580,000 units, with plans to launch 23 new models in five years.
Mr. Ghosn has said he wants Brazil to become Nissan-Renault's second-biggest market by the end of this year.
Nissan currently has 1.7 per cent of the market, with sales of 37,000 cars and light trucks in the eight months to end-August, while Renault is the fifth-biggest in Brazil with 5 per cent of the market. Nissan aims to lift its share to 5 per cent by 2016 and Renault to 8 per cent during the same period.
Both will face challenges from the high cost of doing business in Brazil. The government recently sharply increased taxes on cars in which more than 35 per cent of components are imported.
Brazil's established car producers are also bracing for competition from cheaper Chinese-made cars, with Chery, JAC and other Chinese producers rapidly gaining market share.
"Major manufacturing costs, expensive financing and high taxation combine with low automation levels in production to blunt Brazil's competitive edge," the Roland Berger report said.