Daimler AG said Wednesday it will invest 1.5 billion euros ($2.01 billion) in the Mercedes-Benz plant located in Sindelfingen, Germany, to make it more competitive.

The company also said it had reached an agreement with the plant's labor council to cut costs in the hundreds of millions of euros. Further, Daimler agreed to produce an additional model at the plant.

"It was important to us to protect jobs and maintain the existing wage tariff agreement," the plant's labor council chairman, Ergun Luemali, said.

The main projects include a new body and paint shop, a new assembly hall for the new E-Class generation, and a new logistics center.

Singelfingen is the company's biggest plant producing Mercedes-Benz cars, Daimler said.

Write to Monica Houston-Waesch at nikki.houston@wsj.com

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