ROME: Italy's Pirelli has signed a joint venture with Saudi Arabia's Public Investment Fund (PIF) to build a tyre manufacturing facility in the country, the two groups said on Thursday.

The deal - for a total investment of US$550 million - will make Pirelli the first tier 1 tyre maker to directly source production in Saudi Arabia, which is trying to diversify its economy away from oil.

PIF, Saudi Arabia's US$700 billion sovereign wealth fund, will hold a 75% stake in the new JV, with Pirelli holding the remaining 25% and providing the technical and commercial support for the development of the project, the two groups said.

The project will not affect Pirelli's deleveraging targets to 2025, they added.

The plant is expected to start producing in 2026 and is set to reach a production capacity of 3.5 million units.

It will make high-quality tyres for passenger vehicles under the Pirelli brand, as well as market tyres under a new local brand mainly aimed at the domestic and regional market, it added.

Founded in 1872, Pirelli now specialises in high-end tyres for premium carmakers like Ferrari, Porsche and BMW and is the sole supplier for Formula One cars.

Saudi Arabia is boosting its manufacturing capabilities in the automobile sector and aims to produce more than 300,000 cars annually by 2030.

Earlier this month, PIF struck a deal with South Korea's Hyundai Motor Group to build a car plant in Saudi Arabia.

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