By William Boston

BERLIN--Daimler AG (DDAIY) said Friday it will invest EUR500 million ($556.1 million) over the next few years to transform its Mercedes-Benz factory in Berlin into a production center for high-tech engine components that reduces emissions.

The move comes as auto manufacturers are under increasing pressure from regulators to slash emissions that are believed to cause global warming. The drive to reduce CO2 output is fueling investment by car manufacturers and their suppliers in electric vehicle development and technology to make conventional combustion engines more efficient.

Daimler will invest about EUR150 million in the plant this year. The rest of the planned investment will follow over the next few years.

The plant, built in 1902, employs about 2,500 workers. The agreed investment is the result of negotiations with the Mercedes-Benz works council over securing manufacturing jobs at the plant.

The agreement with the works council will "put the entire production of the Mercedes-Benz plant in Berlin on a modern and competitive footing--and represent a clear commitment to our location in the capital," Peter Schabert, Head of Powertrain Production and Site Manager Mercedes-Benz Untertürkheim plant, told reporters in Berlin.

At its factory in Berlin--the oldest in operation in Daimler's global network--Mercedes already manufactures high-precision transmission components, camshaft adjusters and fuel systems. The new investment will make the plant a global center for the company's CAMTRONIC valve timing system that reduces CO2 emissions.

Write to William Boston at William.Boston@wsj.com

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