JAKARTA (Reuters) - Hyundai Motor Co 005380.KS plans to start producing electric vehicles (EVs) in Indonesia as part of an around $880 million auto investment in the country, the deputy minister for industry said on Thursday.

FILE PHOTO: The Hyundai logo is seen during the first press day of the Paris auto show, in Paris, France, October 2, 2018. REUTERS/Regis Duvignau/File Photo

Hyundai’s move to set up its first car factory in Southeast Asia fits into the South Korean carmaker’s strategy of cutting its reliance on China, where competition is intense and its sales have suffered from diplomatic tensions between Seoul and Beijing.

Hyundai Motor, which together with affiliate Kia Motors 000270.KS is the world's No.5 automaker, plans to build a factory in Indonesia with a capacity of about 250,000 units, including for electric cars, Indonesian deputy minister for industry Harjanto told Reuters.

Indonesia has ample reserves of nickel laterite ore, a vital ingredient for the lithium-ion batteries used to power EVs.

The minister noted the plan was to export 53 percent of the cars manufactured in the proposed Hyundai plant, mostly to Southeast Asia and Australia, while the remaining 47 percent would be for the domestic market.

Hyundai said in a statement on Friday that it was “considering various ways to expand” in new markets including Southeast Asia. It added however that nothing had been decided regarding new production facilities in the region.

TAKE ON JAPANESE RIVALS

Hyundai briefed South Korean union officials earlier this year about a plan to build a factory in Indonesia, three people familiar with the matter told Reuters on Friday. One of the challenges it identified was building sales networks, the sources said.

Hyundai-Kia's think tank vice president Lee Bo-sung said on Thursday the ASEAN market was difficult to "penetrate" as it was dominated by Japanese rivals such as Toyota 7203.T and Honda 7267.T.

In Indonesia, Hyundai sold only 1,372 vehicles during the January to October period, compared with Toyota’s 463,565 vehicles, according to data from market researcher LMC Automotive.

Hyundai does not have a car factory in Southeast Asia, although it has some assembly operations in Vietnam.

Last month, Hyundai announced a $250 million investment in Singaporean ride-hailing firm Grab and a plan to offer EVs to Grab drivers in Southeast Asia.