Jaguar Land Rover (JLR) has signed a preliminary deal to build a plant in Saudi Arabia
The British luxury marque, owned by India's Tata Motors, signed the deal to look at the possibility of making 50,000 Land Rovers a year at a Saudi plant costing some 4.5 billion riyals ($1.2 billion), the country's commerce and industry ministry said in a statement.
A spokesman for JLR said the agreement was "purely exploratory" and it was too early to provide any details.
JLR has seen huge demand over the past year from emerging markets such as China, Russia and countries in the Middle East for its luxury SUVs and sleek sedans, offsetting sluggish growth in developed markets.
The company and its Chinese partner Chery Automobile said last month they had laid the foundation stone for a factory near Shanghai.
"I can't make any statement for these kind of investment figures. We have just signed a letter of intent - it's a letter of intent to investigate the project," JLR chief executive Ralf Speth told reporters in the Saudi capital.
"A memorandum of understanding is scheduled in the next year and this memorandum of understanding will have more facts and figures."
The proposed plant, which will assemble four-wheel-drive Land Rovers, will likely start up in 2017 and will be located in Yanbu on the kingdom's Red Sea coast, said Azzam Shalabi, head of the Saudi commerce and industry ministry's industrial clusters programme.
Saudi Arabia, which does not have an existing automotive industry, is seeking to develop local industry to diversify its economy away from oil exports, leveraging its abundant natural resources and low electricity prices.
JLR said in its statement it had already identified opportunities for aluminium component production in the country, but it did not specify where the investment for the proposed plant would come from.
The company would not lose British jobs to any new Saudi plant, Speth said.
"If we proceed, it will complement our existing expansion in the UK and elsewhere," Speth was quoted as saying in the JLR statement.
For Tata Motors, JLR is a key unit which delivers 90 per cent of group profit.
The group's shares jumped last month after it reported that July-September margins at JLR had improved to 14.8 per cent from 14.4 per cent a year earlier.
Ratan Tata, outgoing chairman of Tata Group, told a magazine in September that Tata Motors was looking using local aluminium production in Saudi Arabia, where Saudi Arabian Mining Co (Maaden) and Alcoa are building a smelter scheduled to start production next year.
That smelter is on Saudi Arabia's Gulf coast, across the country from Yanbu, but Shalabi said a rail link connecting the two areas would be operational by 2017 to ship rolled aluminium to the Land Rover factory.