Audi said earlier this year it planned to build a factory in Mexico - its first in the Americas - in a step designed to take advantage of low labor costs and an exemption from import duties in some regions there to help it reach its target of selling 1 million cars in the U.S. by 2018.
The new plant in Puebla announced by Audi on Tuesday will strengthen VW's operations in the central Mexican state, where Europe's biggest carmaker already makes the Jetta compact sedan, its best-selling U.S. model, and the new Beetle.
The move will also bring VW closer to rivaling Nissan (7201.T) in volume in Mexico and help its premium car brand Audi catch up with BMW (BMWG.DE) and Mercedes (DAIGn.DE) in the United States. The two German competitors have had production footprints in the world's No.2 auto market since the 1990s and each sell about twice as many cars there as Audi.
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