Saudi Arabia’s Public Investment Fund and Italian tyre manufacturer Pirelli have formed a joint venture to build a tyre manufacturing plant in the kingdom, with an estimated investment of about $550 million.

The PIF will hold a 75 per cent stake in the JV, with Pirelli holding the remainder, the Riyadh-based wealth fund said on Thursday.

The plant, which is set to commence operations in 2026, will manufacture tyres for passenger vehicles under the Pirelli brand.

It will also produce tyres under a new local brand aimed at the domestic and regional markets.

The project is expected to have an annual production capacity of 3.5 million units and will have a “neutral” impact on Pirelli’s deleveraging targets to 2025.

“Through this joint venture with Pirelli, PIF is building production capabilities in the automotive and mobility value chain,” said Yazeed Al Humied, deputy governor and head of Mena investments at the Saudi fund.

“This collaboration marks another pivotal milestone in our journey to diversify the economy, enhance sustainability and localise manufacturing capabilities in Saudi Arabia.”

Saudi Arabia, the Arab world’s largest economy, is focused on building its domestic EV market as part of its Vision 2030 strategy to diversify its economy away from oil.

This week, the PIF and Hyundai agreed to jointly build a car manufacturing plant in the kingdom, with an estimated investment of more than $500 million.

The joint venture intends to manufacture 50,000 vehicles a year, including internal combustion engine and electric powered vehicles.

Earlier this month, the PIF and the Saudi Electricity Company also launched an EV infrastructure company that plans to set up 5,000 fast chargers across the kingdom by 2030.

In September, PIF-backed luxury electric vehicle maker Lucid Group opened its first international manufacturing plant in Saudi Arabia, which is expected to produce 155,000 cars a year.

In November last year, the fund also launched the kingdom’s first EV brand, Ceer, which aims to attract more than $150 million in foreign direct investment and create up to 30,000 direct and indirect jobs.

“Accessing local production in Saudi Arabia, one of the most promising markets today … represents a great opportunity for Pirelli,” said Marco Provera, executive vice chairman of Pirelli.

The closing of the deal is subject to regulatory approvals.

Updated: October 26, 2023, 12:06 PM