Tesla Inc will build its first European electric car factory in the German capital, Berlin, its Chief Executive Officer Elon Musk said.
Berlin also has earmarked financial support for manufacturing electric car battery cells.
Musk, in a tweet, said that Tesla will build batteries, powertrains and vehicles, starting with the lower-priced Model Y sports utility vehicle at the Berlin factory.
Last month, Tesla said it expected its European factory to start production in 2021. The carmaker is also gearing up to open its factory in Shanghai.
Musk made the announcement about the Berlin plant at the Golden Steering Wheel awards ceremony in Germany. He said the factory will be near the new Berlin airport. Musk had said in June last year that Germany is the frontrunner for its first factory in Europe.
"Tesla is coming to Brandenburg with a big investment," Dietmar Woidke, state premier of Brandenburg, which surrounds Berlin, said in a statement. "We lobbied for this for a long time in intensive talks and with good arguments."
The company is yet to prove it can be consistently profitable. Tesla faces big investments with the launch of new factories and the development of products, including a pick-up truck and a semi-truck.
Musk's appearance at the awards ceremony is another example of Tesla's efforts to co-opt marketing tactics employed by German manufacturers, which have a reputation for quality.
Tesla, for instance, has tested its cars on the Nordschleife, the notorious northern loop of the Nuerburgring racing track, as a way to burnish the brand's reputation for reliability and sporting prowess.
The company has an engineering firm in Pruem, Germany, that specialises in automated manufacturing systems for battery plants.
Tesla unveiled its first vehicles built in China on November 11. The Model 3 sedans were assembled in the company's Shanghai Gigafactory, of which construction began in January.
It is the first plant in China that is wholly owned by a foreign carmaker and also Tesla's first outside the United States.
But Tesla now faces competition from China Evergrande Group, a property giant that plans to unveil its debut electric vehicle by June 2020 in a bid to become the world's largest maker of electric cars.
Mass production of the car will start in 2021 and the vehicle will be sold under the Hengchi brand, China Evergrande said in a statement on Tuesday.
Volkswagen is also racing to serve the electric car market as it prepares two Chinese factories to build electric cars next year.