German luxury car maker Mercedes-Benz said on Friday it would spend one billion euros ($1.1 billion) on a large new factory in Hungary, creating around 2,500 jobs.

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The "convertible factory" -- designed to be rapidly reconfigured to produce different models -- will sit alongside an existing plant in the city of Keckskemet, Mercedes board member Markus Schaefer said in a statement.

Construction will begin in 2018, with the company hoping to start production in 2020 or 2021, a spokesman for Mercedes parent Daimler told AFP.

The new factory will be capable of producing rear-wheel drive models as well as the front-wheel drive cars currently built in Hungary -- and will enter service as Mercedes ramps up a push to eventually electrify all its passenger cars.

Stuttgart-based Mercedes, the flagship brand of the Daimler group, has been producing compact cars at its facility in Keckskemet, around 70 kilometres (45 miles) south of Budapest, since 2012.

Company bosses announced plans to invest an additional 580 million euros modernising and expanding that factory in April.

The site currently employs more than 4,000 workers and produced more than 180,000 cars in 2015.

Daimler reported record unit sales of 761,334 vehicles and net profits of 2.45 billion euros in quarterly results released on 21 July.