(Adds Mark Fields comment saying decision not result of Trump pressure)

By Bernie Woodall and David Shepardson

FLAT ROCK, Mich./WASHINGTON, Jan 3 (Reuters) - Ford Motor Co said Tuesday it will cancel a planned $1.6 billion factory in Mexico and invest $700 million at a Michigan factory, after President-elect Donald Trump had harshly criticized the Mexico investment plan.

The second largest U.S. automaker said it would build new electric, hybrid and autonomous vehicles at the Flat Rock, Michigan plant and add 700 jobs.

Ford Chief Executive Mark Fields said the decision to cancel the new Mexico factory was the result of sagging demand for small cars in North America and not because Trump was elected president. He told Fox Business that the automaker would have made the same decision even if Trump had not been elected.

"There was no quid pro quo because there was no negotiation" with Trump over the decision to cancel the plant, Fields said.

Fields told reporters the decision related to the need to "fully utilize capacity at existing facilities" amid declining sales of small and medium sized cars such as the Focus and Fusion.

Fields also endorsed "pro growth" tax and regulatory policies advocated by Trump and the Republican-led Congress. "This is a vote of confidence for President-Elect Trump and some of the policies he may be pursuing," Fields said.

Trump repeatedly said during the election campaign that if elected he would not allow Ford to open the new plant in Mexico, which he called an "absolute disgrace" and would slap hefty tariffs taxes on imported Ford vehicles.

Ford executive chairman Bill Ford Jr. told reporters he spoke with Trump to notify him of the decision. The company said the decision was influenced by Trump's policy goals such as lowering taxes and regulations but that there were no negotiations over the decision announced on Tuesday.

By contrast, Trump's team held talks with United Technologies Corp in November before the company agreed to keep about 800 jobs at its Carrier air conditioning unit in Indiana out of 2,100 set to go to Mexico. Trump has also held high profile meetings with the chief executives of Boeing and Lockheed Martin to talk about the cost of military contracts.

Also on Tuesday, Trump threatened to impose a "big border tax" on General Motors Co for making some of its Chevrolet Cruze cars in Mexico.

The New York businessman, who has vowed to bring back American jobs that have been outsourced overseas and be tough on illegal immigration from Mexico, takes office on Jan. 20.

Fields said Ford will build a battery electric SUV with a 300-mile driving range at the Michigan plant by 2020 -- taking on companies like Tesla Motors Inc, Volkswagen AG and GM -- and will launch production there by 2021 of a fully autonomous vehicle without a steering wheel or a brake pedal for use in ride services fleets.

Ford also plans new hybrid versions of its F-150 pickup truck, Mustang and police vehicles by 2020 as the auto industry faces rising fuel efficiency mandates.

Ford will add 700 jobs at the Flat Rock plant, Fields said, to cheers from union workers gathered at the factory for the announcement.

TRUMP PREDICTION

Ford in April announced it would invest $1.6 billion in the new plant in San Luis Potosi, Mexico to build small cars. The company said it will shift production from Michigan of its Focus to an existing plant in Hermosillo, Mexico.

When Trump announced his campaign in June, 2015, he said Ford would cancel its planned Mexico investments. "They'll say,'Mr. President we've decided to move the plant back to the United States - we're not going to build it in Mexico.' That's it. They have no choice," Trump said.

Trump tweeted a link on Tuesday to a story about the decision.

Ford shares rose 3.3 percent to $12.54, up $0.41 a share, while the Mexican peso fell on Tuesday to touch its weakest level in seven weeks.

Ford said it will add two new unnamed products at its Michigan Assembly Plant in Wayne, Michigan, where the Focus is manufactured today.

(Reporting by David Shepardson; Editing by Chizu Nomiyama and Alistair Bell)