Daimler AG will spend $1 billion to start production of Mercedes-Benz electric vehicles at its Alabama factory, setting the car maker up to battle with Tesla.

The automaker will build its fifth battery plant globally and create more than 600 jobs in the region, the company said Thursday in a statement. The Alabama factory will assemble electric sport utility vehicles.

Tesla's flagship Model S sedan outsold the Mercedes S-Class and BMW 7-Series last year in the U.S., putting pressure on the brands to defend their image as automotive innovators.

Daimler is also in talks to expand its Denza joint venture with BYD Co. in China with additional models, Chairman Wang Chuanfu told a group of reporters in the southern Chinese city on Thursday.

As part of a 10 billion-euro green-car rollout, Mercedes unveiled an electric hatchback this month at the Frankfurt auto show.

Mercedes started assembling vehicles in Alabama 20 years ago. The factory has since emerged as one of the brand's main manufacturing hubs worldwide, with some 70 percent of assembled vehicles slated for export to global markets.