SEOUL (Reuters) - South Korea's Hyundai Motor Co (005380.KS) on Tuesday said it began construction on its fifth Chinese plant, in Chongqing, to regain lost momentum in the largest auto market with a new compact car and higher production of sport utility vehicles.
Hyundai, which together with affiliate Kia Motors Corp (000270.KS) ranks fifth in global sales, has been struggling with slow sales in China partly due to an absence of new SUV models to compete with its rivals' latest releases.
"We have to acknowledge that we will see a lower growth rate and we will need to fend off new challenges from fast-growing domestic Chinese automakers," Hyundai Motor Vice Chairman Chung Eui-sun said at the ground-breaking ceremony.
Hyundai, which has failed to take advantage of a global SUV boom spurred in part by cheaper fuel, has previously said it was considering boosting production of the gas-guzzlers to keep up with market growth.
The Korean automaker will invest $1 billion with its Chinese partner, BAIC, to build the fifth plant, which will have annual capacity of 300,000 units.
It will also expand its dealer network by 300 dealerships to 2,000 to strengthen customer service.
Nomura, the investment bank, downgraded Hyundai Motor to neutral in a report on Tuesday, reflecting less-than-expected Chinese demand for the South Korean duo's vehicles.
Hyundai has two plants under construction in China. Expected to begin production in 2016 and 2017, they will help Hyundai and Kia reach an annual combined capacity target of 2.7 million vehicles by 2018.
(Corrects 1st para to show plant is 5th in China, not in Chongqing; adds dropped given name of vice chairman in 3rd para; corrects para 6 to show dealer expansion is to boost customer service, not to overcome delivery delays)
Editing by Stephen Coates