Audi India to locally assemble the 2.0 TDI by end of this year

Audi India will start local assembly of its 2.0 litre diesel engine by the end of this year, two independent sources told CNBC-TV18. The Volkswagen Group has also confirmed this development.

The Volkswagen Group, parent of the Audi, Skoda and Volkswagen brands, will assemble the engine at the company's diesel engine assembly plant in Chakan near Pune. The second phase of the plant was inaugurated in January 2015.

Audi currently imports engines, gearbox and transmissions, which are then assembled in India.

In an email to CNBC-TV18, a Volkswagen spokesperson said, "Volkswagen India plans to start assembling the 2.0 litre engine at the Pune plant towards the end of 2016. There is a single assembly line that will be set up for the new 2.0 litre engine."

The spokesperson did not respond to CNBC-TV18's query on the investment made into the project. Audi India chose to not comment on this story, instead sharing Volkswagen's comments.

Sources quoted earlier said the locally assembled engine will be fitted across key Audi, Volkswagen and Skoda models. The models that are likely to use this engine would include the Audi A4 and A6 sedans and compact luxury crossover SUV Q5, the Volkswagen Passat, Jetta and compact crossover Tiguan TDI and the Skoda Octavia, Superb and the next generation SUV Vision S.

Foreign luxury carmakers have begun locally assembling their engines over the past few years, as part of their focus on increasing localisation levels to bring down prices and compete in the fiercely competitive and price-sensitive Indian market.

Pune-based Force Motors assembles engines for both BMW and Mercedes-Benz, setting up exclusive assembly plants for both brands.

According to sources, a locally assembled engine will bring a host of benefits to Audi. Firstly, Audi will be able to pare down its custom duty bill by 10-30 per cent, bringing down prices. Second, local assembly will speed up its manufacturing process, reducing waiting periods on its cars by a big margin. And this should help Audi regain its lost momentum in the Indian market.

In 2015, Audi lost the top spot in the Indian market to rival Mercedes-Benz. While Mercedes-Benz sold 13,502 units during the year, Audi sold 11,192 units.

Mercedes-Benz has been aggressively pushing for dominance in the Indian market. After launching 15 models last year, it intends to launch 12 in 2016. At the 'Make in India Summit' held in Mumbai last month, Mercedes committed to increasing the annual production capacity at its Chakan plant by four times - from 20,000 units to 80,000 units a year. Mercedes has also been proactively increasing the number of models it assembles locally -- the list includes the C, E, M, S Class models apart from the CLA, GLA and GL Class, as well as the Maybach S500.