VW will add about 1 million square feet to its already huge Puebla, Mexico plant for the new Tiguan.

Volkswagen will drop $1 billion into its assembly plant in Puebla, Mexico to produce a new three-row version of the Tiguan sport-utility vehicle.

It’s the latest step in a costly program meant to expand VW’s utility vehicle line-up and increase its competitive position in the U.S. market. The German maker has struggled to rebuild sales even as the overall American market continues to boom, and a lack of utes has been one of its biggest problems, senior officials believe.

The Puebla plant is already one of Volkswagen’s larger global facilities, handling a range of products including the latest-generation Golf hatchback. And it will now take on the Tiguan when the $1 billion expansion is completed late next year, in time for the start of the 2017 models.

“Localization has become key to safeguarding our competitive position on the global market and manufacturing the Tiguan in Mexico will bring production closer to the U.S.-market,” said Michael Horn, president and CEO of Volkswagen Group of America.

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Volkswagen was one of the earliest players in Mexico, a country that has rapidly become one of the largest production sources in the world thanks to key advantages that include low labor rates, easy shipping to markets in both Latin and North America, and the fact that Mexico has negotiated a broad array of free trade agreements.

VW isn’t saying much about the new Tiguan other than noting that it will have three row “capability” and be based on a longer version of the SUV that will be sold in the European market. It is expected to be more refined than the entry-level ute currently offered.

“It is another proof point that Volkswagen is committed to further growth in the U.S. and North American markets,” said Horn in a prepared statement. “With production of the Golf A7 and the Tiguan now moved to Puebla, we will build approximately 90% of our products in the NAFTA region.”

VW's Cross Coupe GTE concept may be the closest to a production model of all the concepts introduced at the Detroit Auto Show.

The launch of the next-generation Tiguan will be just one step in VW’s plan to expand its SUV line-up, however. It has confirmed it will build a new midsize ute, slotted below the current Touareg flagship, and based on its well-received CrossBlue Concept. That new model will go into Chattanooga Assembly Plant which will undergo a $900 million expansion.

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VW also plans to add a smaller, 2-row model, possibly basing it on the Cross Coupe GTE concept vehicle that was unveiled at the North American International Auto Show in Detroit this past January. No timing has yet been announced, nor has VW said where that model would be built. But as with the new Tiguan and the midsize model, the 2-row SUV will almost certainly be built in North America, as well.

VW is clearly optimistic about the new Tiguan’s opportunities, forecasting production will run about 500 units a day. That will cover markets in both North and South America, as well as a number of other export markets. It will not, however, be shipped to Europe or China.

In all, VW plans add about 1 million square feet to the Puebla plant. Employment also will rise, though the maker says it will rely on more advanced automation than it had in the past at Puebla.

(Click Here for a first look at the VW Sport Coupe GTE Concept unveiled at the Geneva Motor Show.)