Updated: Volkswagen’s U.S. chief Stefan Jacoby has confirmed the carmaker is looking at securing a location in either Michigan, Alabama or Tennessee for its new North American plant and expects a final decision to be made by the middle of the year. Key considerations for the decision include cost, logistics and the readiness of the site.

Speaking with the Detroit Free Press, Jacoby said VW hopes to sell up to 800,000 vehicles in the U.S. by 2018 and the plant would need to build at least 200,000 vehicles a year to remain feasible. Production is scheduled to start in 2011 or 2012.

Original: The final decision on the location of Volkswagen’s North American plant is still several months away but we can confirm executives have ruled out the option of building the new facility in either Mexico or Canada. Instead, the new plant will be built in the U.S. and the most likely locations at the moment are Georgia and South Carolina.

A top VW official has told Automotive News Europe that there are only a few options left in discussion and all of these involve the U.S. He also revealed that executives will discuss the issue at this week’s annual general meeting to help speed up the decision making process. VW is hopeful production at the plant will start by 2011 at the latest.

The source also revealed the new plant will initially be used to build a number of existing VW and Audi models, however it will eventually produce several all-new models including a pair of sedans that will be unique to the North American market.

In addition to the car plant, VW may also build an engine and transmission plant to support the new vehicle production line. According to the Financial Times Deutschland, an engine plant could be viable if Volkswagen manages to grow sales in North America to around 1m units, as planned. Last year combined sales for Audi and VW in North America stood at just 565,000 units.