The Japanese car company said Friday that the Georgetown plant will build about 50,000 of the flagship sedans each year, creating 750 new jobs.
The Georgetown plant currently assembles the Camry, Avalon and Venza models as well as their hybrid counterparts. The plant already employs about 6,600 people.
Toyota said it will invest $360 million to build the Lexus assembly line, boosting Georgetown's annual vehicle production to 550,000 a year. The company made the announcement at simultaneous news conferences Friday in New York and Georgetown.
"It is fitting that the first country to build the ES outside of Japan is the United States," Toyota Motor Corp. President Akio Toyoda, the company's top executive, said in New York. "This is the home for Lexus. It was where the brand was founded and it is still the biggest market for the luxury brand."
Toyota started the Lexus luxury brand in 1990 and has since sold nearly 1.2 million ES sedans in the U.S., Toyoda said.
Kentucky Gov. Steve Beshear said Toyota would invest a total of $531 million in the Georgetown plant. The remaining $171 million will be spent over several years to modernize the factory, which is 26 years old, said Jim Lentz, the company's North American CEO.
The investment, Lentz said, is in addition to previously announced plans to sink $2 billion into factories in Mississippi, Indiana, West Virginia and in Canada during the past 17 months, creating more than 4,000 jobs.
He said the spending and hiring should give Toyota enough factory space and workers to handle an expected rise in U.S. auto sales during the next several years. Last year, automakers sold 14.5 million cars and trucks in the U.S., and sales are expected to rise above 15 million this year. Some analysts are predicting 17 million by 2017, about equal to the boom times of the late 1990s and early 2000s.
The sprawling Georgetown factory won't be expanded by much, Lentz said. Instead, a dedicated Lexus assembly line will go mainly into existing space because the lines have gotten smaller since the plant first opened.
Toyota built about 1.8 million vehicles in North America last year, and the additions will give the company the capacity to build over 2 million, Lentz said. "With overtime and other improvements, I think we can get north of that," he said. "I think right now we're still in a good spot based on where we see demand and capacity."
The Lexus ES, a large midsize luxury car, is offered in conventional and gas-electric hybrid versions. Only the gas-powered cars will be made in Kentucky. Even with the additional factory capacity, Toyota still will have to import ES sedans from Japan because of growing demand, Lentz said.
Sales have nearly doubled so far this year compared with 2012, a year in which ES sales rose 37 percent. Toyota sold just over 56,000 ES models in the U.S. last year.
Lentz has said Toyota would continue to move production to North America as a hedge against fluctuations in the value of the yen versus the dollar. The company now builds in North America roughly 70 percent of the cars and trucks it sells in the region, he said.
The strong yen had caused Japanese automakers to produce more cars in North America. But recently the yen has weakened against the U.S. dollar, helping Japanese exporters. Lentz said the weaker yen is short term, and Toyota's broader strategy is to build where it sells.
Toyota also announced a new focus on stylish design for the Lexus brand. Both Toyota and Lexus vehicles have been praised for their reliability but criticized for bland designs and performance.
Toyoda said the decision to build the ES in the United States was the first made by a new team of executives in North America and a management structure that gives them authority to make faster decisions.
The Kentucky Economic Development Finance Authority approved $146.5 million in state tax incentives on Wednesday to help with the cost of the expansion.