Saudi Arabia signed an agreement with Isuzu Motors Ltd to set up a car and truck manufacturing factory, costing around SR500m ($133m), state news agency SPA said late on Monday.
Production will begin in the fourth quarter of 2012 with initial output of 600 trucks, the project manager was quoted as saying in the statement. The plant will be located in Dammam.
"Expansion in the project will raise production to 25,000 trucks annually by 2017. The company will work to export 40 percent of production to international markets," Qusay Al Abdul Kareem said.
Saudi Arabia import around 600,000 cars annually, SPA said.
Top OPEC producer Saudi Arabia, the largest Arab economy, is heavily dependent on oil and is trying to diversify its revenue to other sources.
In December, King Saud University in Riyadh signed a memorandum of understanding with a South Korean car manufacturing firm to set up a new company with a capital of about $500m.
A prototype of an economy model car designed for local use will be ready within two years and may later be exported to Gulf and North African countries, the university's president said at the time.