Daimler said it will open its first factory in Russia to build SUVs and the E-class sedan.
The company will invest more than 250 million euros ($263 million) in the 20,000-unit capacity factory, located about 25 miles northwest of Moscow, with the first cars due to leave the assembly line in 2019.
"Russia is of strategic importance for Mercedes-Benz and an attractive growth market," Markus Schaefer, Mercedes' production chief, said in a statement. "By establishing a local production we not only achieve greater proximity to our Russian customers but also strengthen the international competitiveness of Mercedes-Benz Cars," he said.
The plant will be a full assembly plant with a paint shop. More than 1,000 jobs will be created at the site and further jobs at local service providers and suppliers, Daimler said.
Despite an economic downturn, Russia remains one of Mercedes' strongest European markets. Mercedes was the top-selling premium brand in Russia in 2016 for the fourth year in a row with vehicle sales of 36,888, down 11 percent, the same decrease as the overall market, according to data from the Association of European Business in Russia.
Reuters contributed to this report