FILE PHOTO: The logo of Toyota Motor Corp. is seen on a company's Corolla car in Caracas, Venezuela October 25, 2017. REUTERS/Marco Bello/File Photo

DETROIT (Reuters) - Toyota Motor Corp 7203.T should decide by the first quarter of 2018 on a location for a new U.S. vehicle assembly plant it will build with Mazda Motor Corp 7261.T, the head of Toyota's North American operations said on Monday.

“The final decision has not been made,” Jim Lentz, chief executive of Toyota North America, told Reuters in an interview in Detroit. More than one state remains in the running for the $1.6 billion plant, Lentz said.

Toyota and Mazda’s plan to build a new U.S. factory is part of a broader wave of investment in North American production capacity by European and Asian automakers. The increased vehicle-making capacity is coming despite forecasts that U.S. vehicle demand is hitting a plateau.

The new factory is part of a broader realignment of Toyota’s production and supply chain in North America. The new plant is expected to build an SUV for Mazda, and Corolla compact cars for Toyota. The Canadian plant that currently builds Corollas will be able to build more SUVs. Toyota also plans a factory in Guanajuato, Mexico that will build Tacoma pickup trucks, freeing up Toyota’s existing factory in San Antonio, Texas to build more Tundra large pickups.

Toyota’s production strategy for North America could be disrupted if negotiations among the United States, Mexico and Canada to amend the North American Free Trade Agreement fail, and U.S. President Donald Trump decides to exit the trade pact.

“I think the government will make the right decision,” Lentz said. “They will tweak, rather than throw out” the existing agreement that allows tariff-free trade in vehicles and components.