In addition, BMW factories in Wackersdorf and Landshut, Germany, will produce parts for the so-called Megacity Vehicle.

“The BMW Group will build the car of the future in Leipzig with high-tech innovations from Bavaria,” BMW CEO Norbert Reithofer said in a statement. “The main reasons behind this decision are the qualities that Germany has to offer: we have a tried-and-tested production network here and high levels of education and outstanding competencies at our disposal.”

The first so-called Megacity cars are due to come off the line in mid-2013.

BMW plans to launch an entire family of electric vehicles from the Megacity subcompact, which is designed for major metropolitan areas. BMW hasn't decided on a production name for the car.