Daimler will team up with industrial giant Bosch in a joint venture to produce electric motors to be used in Mercedes and Smart cars next year, both companies said on April 12.
The two firms have signed a letter of intent and joint production should start in 2012 at sites in Hildesheim in central Germany and Stuttgart in the south-west.
The 50-50 joint venture, which should be in place by the end of June, aims "to accelerate development advances in electric motors," a statement said.
Home to many of the world's top car firms, Germany has been slow off the starting grid when it comes to developing electric vehicles, with Japan and the United States powering ahead.
The world's leading luxury car maker, BMW, said last year it would invest 400 million euros (US$575 million) by 2013 to produce an electric car as German manufacturers scramble to catch up with global rivals.
Chancellor Angela Merkel's government has offered sweeteners to auto firms to hit the government's target of having one million electric cars on the road by 2020.