Daimler plans to spend $US1 billion ($1.26 billion) to start production of Mercedes-Benz electric vehicles at its Alabama factory, setting the world's largest luxury-car maker up to battle with battery-car specialist Tesla on its home turf.

The German automaker will build its fifth battery plant globally and create more than 600 jobs in the region, the company said on Thursday in a statement.

The Alabama factory will assemble electric sport utility vehicles, taking on Tesla's Model X and making Stuttgart-based Daimler the first European company to assemble plug-in autos in the US.

"We're celebrating our 20th anniversary at our production facility in Tuscaloosa, Alabama, and we're taking this as an opportunity to expand the operation and further fuel growth," production chief Markus Schaefer said in a Bloomberg TV interview.